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[Ripclawe]

Multiple angles to this story.

http://www.nytimes.com/2004/11/18/business/18dollar.html

dollar fell to a record against the euro and dropped against the yen yesterday as Treasury Secretary John W. Snow signaled that he would not back any agreement to stem the currency's slide.

"The history of efforts to impose nonmarket valuations on currencies is at best unrewarding and checkered," Mr. Snow said in response to a question on whether he would support an agreement with Europeans to manage the pace of the dollar's decline. He made the comments after a speech in London.


"It's become obvious the U.S. administration isn't going to stand in the way of dollar weakness," said Jeremy Fand, senior proprietary trader in New York at WestLB. "The U.S. administration is playing hardball with the Europeans. If the Europeans aren't going to stimulate their economy, they have to understand there's a consequence."

http://www.washingtonpost.com/wp-dyn/articles/A58899-2004Nov17.html

The administration's lack of concern about the latest movements in currencies is rooted partly in the fact that a lower dollar helps boost U.S. manufacturers by making their goods cheaper on world markets. But the same trend works against the competitiveness of foreign companies, and protests from European officials in particular have grown increasingly pointed as their economies have stalled in recent months.

"It's clear that the greenback has become unhinged compared to the world's other currencies," French Finance Minister Nicolas Sarkozy said Tuesday, arguing that the drop is "linked to the accumulation of deficits of our U.S. friends." German Chancellor Gerhard Schroeder, who previously shrugged off the euro's rise, said this week: "Everyone is concerned about the euro-dollar rate and the effect this has on exports."

Such complaints have drawn no sympathy from Snow, who has stepped up his exhortations for European governments to spur growth by deregulating their economies. "The euro zone is growing below its potential," he told the BBC on Monday. And European officials have acknowledged that without U.S. backing, intervening in currency markets by buying dollars would probably be futile.

http://yahoo.reuters.com/financeQuo...tfh37923_2004-11-17_18-29-09_n17596558_newsml

WASHINGTON, Nov 17 (Reuters) - U.S. manufacturers brushed off European complaints on Wednesday about the weak U.S. dollar and argued that the greenback actually was still too strong.
"The dollar's correction is barely more than half complete," Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers said in a statement. "Contrary to so much anxious commentary, the U.S. dollar is not becoming too weak."

Stephen Collins, president of the Automotive Trade Policy Council, said EU officials were right to be concerned about disproportionately bearing the brunt of the dollar's adjustment.


"Because China, Japan, Korea, Taiwan and some other Asian nations are intervening or threatening to resume intervention in order to keep their currencies artificially weak against the dollar, Europe, Canada, Australia and other major U.S. trading partners are shouldering a disproportionate share of the adjustment burden for global economic stability," he said.

"We hope the EU will join the United States and others in pressing our Asian trading partners to end their dependence on the unfair competitive advantages they derive from currency market interference," Collins added.

 

[xexex]

so.... wtf does all this mean?

 

[Ill Saint]

so.... wtf does all this mean?

The EU hates Freedom.

 

[fennec fox]

It means it's back to the 1980s glory days of $1 = 90 yen and very poor fenegi- every TGS

US manufacturers can get bent. It's already way too damn expensive to travel overseas anywhere.

 

[Loki]

so.... wtf does all this mean?

Knowing Ripclawe, something about the merits of laissez-faire capitalism and the wisdom of Republican economic policies.

 

[NLB2]

Low dollar means American goods are cheaper which means US exports more goods which means more jobs in the US. It also means foriegn products are more expensive in the US. Basically.

 

[gofreak]

Is this not bad for the US trade deficit though? :confused

 

[aaaaa0]

Is this not bad for the US trade deficit though? :confused

No, a low dollar is good for the US trade deficit.

Imports being more expensive = less sales of imports. So less money leaves the country because people are buying products made in the US, rather than abroad.

Exports being cheaper = more sales of exports. More money is coming into the country, because foreigners are buying more US exports.

So a low dollar tends to make the trade deficit go down, while a high dollar tends to make it go up.

PS:

In the end it tends to balance out -- having a huge trade deficit will cause the dollar to drop. As the dollar drops, exports will increase, which will reduce the trade deficit. This will tend to drive the value of the dollar back up.

The system will eventually find an equilibrium when the market decides that the imports and exports of a country are balanced enough.

 

[Project Midway]

so.... wtf does all this mean?

Importing dvds from US/Canada becomes cheaper and cheaper. WOOHOOO!

 

[Che]

Strong currency: Helps the common man.
Weak currency: Helps the corporations.


Both obviously prefer the second.

 

[Bizarro Sun Yat-sen]

so.... wtf does all this mean?

If you're American, it means lots of inflation's in your future.

 

[Kiriku]

Maybe this is a question with an obvious answer, but does the US dollar have a big influence on the Canadian dollar, ie the Canadian dollar drops along with the US dollar?

 

[aaaaa0]

Strong currency: Helps the common man.

How's that work?

A weak currency helps fuel domestic job growth because the country is exporting more stuff that has to be manufactured here.

A weak currency also means outsourcing jobs to India makes less financial sense for domestic companies.

I think both things help the common man.

 

[aaaaa0]

If you're American, it means lots of inflation's in your future.

A weak dollar and inflation don't necessarily go hand in hand. Inflation will only increase if there are no domestic substitutes for imported products.

 

[Bizarro Sun Yat-sen]

If there were (equally cheap) domestic substitutes for the stuff we're importing, we wouldn't be importing it in the first place.

 

[aaaaa0]

If there were (equally cheap) domestic substitutes for the stuff we're importing, we wouldn't be importing it in the first place.

Oops. Yes you're right. My bad.

But as demand for domestic product increases and the cost of the imports increases, won't economies of scale kick in and stimulate cheaper domestic production? Or stimulate development of alternatives?

 

[Bizarro Sun Yat-sen]

Sure, but again, the fact that we're not already doing that stuff suggests that the production costs, when coupled with the costs of developing the alternatives etc., would still be more than current import costs - at least if you believe that free markets always tend to find the most efficient allocation of capital. A lot of Republican Party apologists like Ripclawe idolize the free market when it suits them, but readily adopt arguments which are nonsensical from a free market POV when it's convenient to do so, and don't seem to mind the cognitive dissonance involved.

I do think the weakening dollar is a good thing for the long run, but only because it's got to happen sooner or latter - the trade deficit is unsustainable, there's only so much debt we can rack up before something gives - so better to take the pain now (should've been years ago actually) and get it over with than put it off, let the situation worsen and suffer a more painful collapse later. But make no mistake - either way, there will be pain.

 

[sprsk]

usa goods being cheaper will mean jack shit come january first when the mad china textile zerg rush happens.