Falling Dollar, Hidden Dragon

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It never ceases to amaze me how stupid people can be about the relative values of national currencies. There's any number of yahoos out there who immediately think that if their national currency gains value against others, this is a reason to strut and preen, while if it falls it's cause for depression.

A recent article from MSNBC, that bastion of insight, breathlessly declared: "The dollar fell to a 12-year low against the Japanese yen Thursday, dropping below 100 yen to the dollar for the first time since November 1995. The euro rose to all time high and is currently trading above $1.55."

Now, to be sure, there are problems associated with declining relative currency value. If people don't want our money, then they don't want out debt. If they don't want our debt, we can't get loans from the world so easily to buy and invest. And on top of that, it gets more expensive to buy products from other countries.

But if you read the article, you won't see a single word touting the flip-side of this issue. If our currency is falling in value, that means the rest of the world finds the things we make to be a bargain, and rushes to buy them. That in turn means our factories need more workers to produce more stuff to meet the new demand. More profits, more jobs. It's not all that bad, is it? On top of that, our falling currency forces us to wean ourselves from foreign debt, which many seem to think is a good idea. The exact opposite happens when the dollar is soaring.

Meanwhile America, the world's largest buyer of stuff, suddenly isn't so interested in buying foreign goods. They seem more expensive now. Massive American demand, previously giving millions of jobs to foreign factories around the world, dries up. To the extent the falling dollar has any negative impact on the U.S. economy, that only magnifies the world's woes. Foreign factories close, jobs are lost, and American products flood foreign countries. Doesn't exactly seem like paradise for the America-haters, does it? Almost seems like the world might want to root for the dollar, not against it, doesn't it?

I can't help but wonder when our MSM is going to get a freakin' clue.

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Comments

republicrestroomsex says:

The Wall Street Journal reports today that 71% of economists say we're in a recession. The clueless MSM and the clueless nutroot economists just don't get it do they? If America goes into a recession, then everything gets worse. If everything gets worse, then eventually, there will be a bottom where everything is really awful. Then once it's at the bottom and things can't get worse, they will start to get better. And as they get better, they will get even better. When will the MSM like the Wall Street Journal wingbats and the nutroot liberal economists get a freakin clue?

Pipple Pusher says:

You know I could have sworn that the billions invested in the US by foreign countries are based on the assumption of a stable and high currency. You are basically trying to argue that when a companies stock declines this is a good thing because their goods will be cheaper. You should work in management.

vova says:

As much as I am for a strong dollar, and it is a good campaign theme too, there is indeed a flip side. If you are a U.S. exporter, you become more competitive with a weak dollar.
And do not forget: Americans are not tourism-savvy, but something like 70 million foreign tourists come to NYC annually, and these people are drawn by our weak dollar and thus cheap merchandise. They spend billions.
On the other hand, a U.S. contractor living in Europe who is paid in dollars, as yours truly, is really hurt: in 2002 a room for two with breakfast in a good hotel was EUR100 or $88. The same room now is still EUR100 but it costs $156.

La Russophobe says:

PIPPLE:

Did you even read this post before "commenting" on it? It clearly acknowledges the investment issue, the point isn't that a falling dollar is only a good thing but that the MSN doesn't report both sides of the story. Your comment adds no value and is not thoughtful or respectful. Basically, a waste of time.

La Russophobe says:

REPUBLIC:

If you have some basis for believing that the falling dollar is CAUSING a recession, please cite it. Otherwise, you are just babbling gibberish.

If it were true, then the world should certainly be doing all it can to strengthen the dollar, since if America has a recessions so will the world. This would only bolster the conclusion of the post. You didn't think much before you commented. Bad idea.

misha says:

Countries issue lots of things, such as songs (national anthems), pledges of allegiance, patriotic slogans and so forth. Most of these are fairly worthless. But one of the most important things that any country issues is its national currency. The value of that currency is determined in international markets and expressed in terms of other currencies. When a country’s currency is strong it means that it has lots of buying power over the other countries. But when the currency is weak it means it lacks buying power. Any fool can figure out that it’s better for a country to have a strong currency than a week one, and the periods when the dollar was strongest also corresponds to the periods of greatest economic growth.

The old “silver lining” argument that a country might increase its exports if its currency goes to hell is a silly and useless argument. What it really means is that the real wages in your country are declining, and based on this wage decline your country’s goods might be more competitive. But if a country wants to cut its wages to increase its competitiveness then it can always do so directly, instead of by inflating its currency.

When the euro currency was introduced in 2001, one Euro bought you only 88 American cents. Now, only 8 years later later, the same Euro will buy you $1.56. That is a 68 percent decline in the value of the dollar since 2001. You can see the exact same thing with oil and gold. It now takes more dollars than ever to buy these commodities (and all other commodities too).

Bush is politically incapable of proposing tax increse to pay for his two wars, or even of proposing to partially reverse the massive tax cuts he enacted early in his first term. This means that the US is fighting a war that its people refuse to pay for (in the same way they refuse to allow their sons and daughters to be drafted for the war). The war in Iraq recently passed the $1,000,000,000,000.00 mark (one trillion dollars). Every cent of this was added to net us debt. This says nothing about the rapidly mounting cost of the “other” war, in Afghanistan, where the Taliban have staged a stunning resurgence, both politically and militarily, basically busting the balls of the NATO alliance.

Bush has fostered the illusion that the US can wage a multi-trillion dollar wars “cost free,” Which of course is complete nonsense, and the US is now paying the costs in the form of the collapse of the US dollar on world markets and the looming economic catastrophe.

The last time the US had the evil combination of rapid inflation during a severe recession was in the aftermath of the Vietnam War, which not coincidentally was the last time the US became both militarily and financially overextended at the same time.

Say what you will, the collapse of the US dollar on world markets signals the beginning of the end of the rule of American imperialism in the world. When people in Colombia and Mexico are refusing to take dollars and demanding to be paid in Euros instead, then you have got to start to think that maybe you are having a few problems.

Ralph says:

Recently took a business trip to Argentina and when I tried to give a taxi driver a $5 tip, he handed it back to me. He said he prefers euros. "Your worthless dollars are only good for wiping my ass," he said.

kalyson says:

Excellent analysis by Misha.

Federal Reserve Chairman Ben Bernanke should resign and the Fed should be abolished as a way to boost the falling dollar and speed up the recovery of the U.S. economy, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe Wednesday.

"No country in the world has ever succeeded by debasing its currency," he said. "That's what this man is trying to do. He's trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term."

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Even though there is some increase in our exports, the general approach to debasing our currency WILL NOT WORK.
Check out this interview with a US manufacturer who is exporting more due to the falling dollar:

---------------
PAUL SOLMAN: So then, with U.S. exports taking off, is the weak dollar the answer to our economic prayers? Well, not necessarily. Everything from abroad now costs more dollars. It's even true at Tummy Tuck.

GEORGE RUDES: It hurts us, the weak dollar, because everything that we buy is imported. There's nothing manufactured in the United States anymore, not fabric, not zippers, not buttons, not thread.

PAUL SOLMAN: And so how much are your costs up?

GEORGE RUDES: I would say they're up about, oh, maybe close to 10 percent. Instead of selling the jean for a $50 bill, you now have to sell it for $53. And the retailer has to turn around and make his margin on the fact that he's paying $3 more.

PAUL SOLMAN: So the price goes up here in America. That, in a word, is inflation: more expensive blue jeans, more expensive lots of things, just what the workers at Not Your Daughter's Jeans are noticing.

Cost of living for you, has it been going up?

EMPLOYEE: Definitely, everything, starting with gas.

EMPLOYEE: Groceries, meat, milk, of course, has gone up considerably.

EMPLOYEE: Everything has gone up pretty much.

EMPLOYEE: It seems like the more expenses I have, the less money I have, also, you know?

Nick Mitchell says:

You're mistaken. Sure factories are hiring, but they are in China.

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Falling Dollar, Hidden Dragon

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