Talk of the Town: Confidence in Dollar, U.S. Economy is Plummeting

[BurtWorm]

http://newyorker.com/talk/content/?041206ta_talk_cassidy


...

In recent weeks, John Snow, the Treasury Secretary, and Alan Greenspan, the Federal Reserve Board chairman, have made statements that can be interpreted as attempts to devalue the dollar. Not surprisingly, their comments prompted more selling on the foreign-exchange markets. But debasing the dollar is a high-risk strategy. Currency movements tend to be self-reinforcing. If traders come to see the dollar as a one-way bet, its slide could turn into a rout. During the past decade, record trade deficits, soaring foreign debts, and prolonged fiscal irresponsibility presaged full-blown currency crises in Mexico, Russia, Brazil, and many other countries. The crises eventually erupted when foreign investors rushed to get their money out of the stricken countries. If that were to occur here, the Federal Reserve would be forced to raise interest rates in order to stop the panic selling, which, in turn, would torpedo the stock and the real-estate markets. The economy would be plunged into a deep recession.

Given the dollar’s unique status as an internationally accepted means of exchange, many economists doubted that such a catastrophe could befall the United States. Now they are not so sure. Russia just announced that its central bank might change some of its dollar reserves into euros, and rumors persist that Saudi Arabia and other Middle Eastern oil producers will soon begin to set oil prices in euros, a move that would undermine the dollar’s privileged status. Most ominously, the Bush Administration has alienated some of the dollar’s biggest supporters by trying to deflect responsibility for America’s growing financial dependency onto China and other low-cost producers. Last week, Li Ruogu, the deputy governor of the People’s Bank of China, told the Financial Times, “China’s custom is that we never blame others for our own problem. The United States has the reverse attitude. Whenever they have a problem they blame others.”

Ultimately, the value of a currency is an international verdict on the honesty and competence of the government that issued it. President Bush may have recovered in the domestic polls, but in the currency markets his ratings are still falling. And, with his Administration determined to pursue further tax cuts and costly Social Security privatization, his numbers don’t seem likely to turn around soon.

[FloridaPat]

1. Is he sure it's China's fault and not Clinton's fault?

[Devil Dog Dem]

11. Yep. It's the fault of Clinton's Penis.

The infamous Clenis, strikes again.

[jbond56]

25. I still think BJ's are better than no jobs. nt

[demnan]

2. I say we should all enjoy

a modest money-saving Christmas. Because the new year ain't gonna be good.

[mtnsnake]

3. I don't know why Kerry never talked about this

The decline of the dollar under Bush's regime has been so alarming that it's amazing it wasn't one of the main campaign issues. All anyone has to do for one example is look at the amount our dollar has fallen against the Canadian dollar during the Chimp's tenure. The Canadian dollar has hit something like an eleven year high during Bushco, and most of it's happened in the last couple years.

[BurtWorm]

4. I was just asking myself the very same question.

Why wasn't this a big issue on the financial networks or talking head news shows, for that matter?

[msgadget]

10. Evidently he's part of the system.

There's a lot he didn't say.

[rockymountaindem]

16. This didn't become an issue until about 6 weeks ago

and has picked up speed as something to use against Bush in the wake of the election. Kerry couldn't really have brought up something so complex and of such importance in the last 2 weeks of the campaign. He wouldn't have had time to establish a message about it.

[mtnsnake]

21. It should've been an issue over 4 months ago

The dollar didn't start sucking only 6 weeks ago; it's been sucking all throughout the chimp's tenure, yet Kerry failed to make mention of it. It's just one of numerous mistakes his campaign made. It's one more big issue they failed to capitalize on.

[paulk]

22. do you really think the idiots that voted for Bush

would have responded to Kerry giving an economics 101 lecture on how the falling dollar would eventually hurt them? C'mon - you saw the debates. "It's hard work."

The press still hasn't gotten around to exposing the 2 trillion dollar hole in Bush' Social Security privitization scheme, and he first proposed that over four years ago - do you really think they would have backed Kerry with any kind of devaluation explanation?

[mtnsnake]

24. That's just it

I believe Kerry failed in his campaign for not explaining clearly enough just how these things affect voters. All these issues were right there for the easy pickings, yet he left them hanging and unresponded to. Not only did he avoid talking about so many weaknesses of the Bush regime, but when he did bring something up, he had trouble explaining things in black and white.

[paulk]

26. you're blaming Kerry for other people's stupidity

If you want to assess blame, look no farther than our media. Kerry gave several excellent speeches on the weaknesses of the Bush campaign - did you see any of it on the MSM?

No.

Kerry explained himself well enough, but it's a damn hard task explaining to a bunch of idiots that things AREN'T black and white.

[mtnsnake]

28. No, I'm blaming him for not CATERING to those people.

Not everyone is an intellectual genius to the extent that they could possibly understand where Kerry was coming from on so many issues. I don't think Kerry himself knew where he stood half the time.

Yes I saw it all on MSM, and as far as the subject of this thread, he never talked about it once unless he did it on some back corner with a fleeting reference to it or something.

Overall, I thought he failed miserably in explaining himself to the American people.

[welshTerrier2]

5. Hoisted on his own petard ...

in the struggle against the neo-con madness, democrats have bobbed and weaved looking for the least little opening to gain some ground ... and, quite frankly, we've certainly not done a spectacular job ... adequate? perhaps ... but not great ...

and then, finally, our best ally has arrived, heralded in by the cavalry's finest trumpeter ... and who has finally shown up to help us? why it's our beloved president, of course ...

did you really believe he could just sail merrily along ... have we forgotten that the reason we oppose him is because his policies are bad for the American people and bad for everyone else as well? just how long did you fear the madness could continue? ... the good ship bush has already hit the reef (not bad, eh ... now we've got both calvalry and ships) ... all that's left to do is record the final gasps of this administration ... the pendulum has stretched to the very end of its right-most tether ...

our best ally in the fight against bush is ... bush ...

[BurtWorm]

7. Isn't it peculiar, though, that this comes into public consciousness

only after the election? Didn't economists see this coming before November 2? I know Krugman did. He's warned about this for several years. But why didn't this come into Kerry's radar screen? Or did it and he chose not to highlight it for some reason? Why would you not highlight something as momentous as this?

[welshTerrier2]

12. "not to worry, democracy is self-sustaining"

before the election, such "sky is falling" proclamations were viewed as mere politicking ... the last thing you want to do with an election at hand is believe anything you hear ... even if it's the truth ...

but now, all statements are truthful ... why would anyone lie ... the election's over, isn't it??

and i think much of this was on Kerry's radar screen ... he did warn about the massive deficits and bush's horrible record on jobs ... perhaps Kerry could have been more effective on these issues ... unfortunately, i'm not sure that much of what passed as an election rested on issues at all ...

and ultimately, that will be an even greater reason than the neo-con agenda that this country will fail ... our citizens think democracies are self-sustaining ...

[lurker5]

13. It was in the news.....

My newspaper of choice is USA Today, and it was definitely reported in there well before the election, and has been a running story.

Kerry didn't jump on this because a big part of his campaign was keeping jobs at home, and improving trade balances. A weaker dollar helps us do those things...as the dollar gets weaker domestic goods get relatively cheaper with respect to foreign goods. Japan for example usually intervenes to keep the Yen weak.

[BurtWorm]

18. Japan seems to have stopped doing that in September.

At least September was the first month when Japan sold more dollars than it bought. It seems a threshhold has been reached.

[shrike]

19. In theory, yes ...

A weaker dollar should help our exports. But, we also have a massive deficit to worry about. And, the products we do export are capital intensive, rather than labor intensive. (Someone did a whole thread on this recently.) So, a rise in exports may not translate into more jobs.

Plus, the WTO is levying sanctions on us, which should affect the price of our imports as I understand it.

Everything Bush touches, he blights -- he won't do this the right way, either.

[hatrack]

32. On top of everything else . . .

USDA now projects a net agriculture deficit in FY 2005. US imports of food and commodities have reached the point where we are likely to import more ag. than we export for the first time in living memory - since the late 1950s. What's more, it's not just a temporary thing.

EDIT

"It's quite a surprise. We've had this trade surplus for so long and it's been so large in most years," said Bruce Gardner, dean of the College of Agriculture and Natural Resources at the University of Maryland. "And the reasons suggest it isn't likely to turn around... This probably is not just a one-year blip."

EDIT/END

http://www.kansas.com/mld/eagle/2004/11/26/business/industries/agriculture/10273288.htm

[newyawker99]

31. Hi lurker5!!

Welcome to DU!! :toast:

[eardoc]

6. High Unemployment = No draft required

Present strategy:
Let the dollar tank for a while.
Support the dollar by increasing interest rates and cutting government spending.
This will pop the housing bubble and crash the domestic economy.
Unemployment (already underestimated) then starts climbing while Bush and co. cry its not their fault.

A new wave of Marines recruits apply, because there is no other option for young people to get work.

Iran, here we come !

[BurtWorm]

8. Bushism = New Spartanism.

We'll become a military state, with the government spending our way out of depression on military pay and other defense spending.

[area51]

20. Welcome.

Welcome to DU, eardoc.

[Strelnikov_]

9. "Ultimately, the value of a currency is an international verdict . .

on the honesty and competence of the government that issued it."

Guess the jury is in. Is it too late to plead insanity?

[lurker5]

15. mad for the wrong reasons.....

I personally think the Dollar should have been devalued far sooner....Greenspan/Bush and company are doing this too late. We've already lost too many jobs overseas.

I think holding off until after the election was dishonest. It needed to be done, and they knew it, but waited because many voters don't understand that a falling dollar can be a good thing.

I think putting re-election above doing what everyone knew was the right thing to do is the sign of a poor president. That's why I'm mad at Bush, and why you should all be mad too.

[whistle]

14. Didn't that same thing happen with the U.S. dollar under. . .

. . . Eisenhower during both of his terms in office from 1952 to 1960? But, then I think the weaker U.S. dollar made for some modest job growth because there were all sorts of trade protections in place for the U.S. economy to rebound as a result of the cheaper dollar. However, John Kennedy was able to steamroll over Richard Nixon in the 1960 presidential race on the slogan "Ask not what your country can do for you, but what you can do for your country".

Republican policies always hurt the middle class and benefit only the wealthy. Democrats in my lifetime have always put forth promise and hope for the middle class.

[Pirate Smile]

17. Gas prices up 44 cents over last year - 20 cents of that is because of the

devaluation of the dollar.

http://www.kansascity.com/mld/kansascity/business/10273391.htm

Faltering dollar adds to pain at the gas pumps

It's easy to wonder why you should care when economists drone on about the declining value of the dollar.

Here's one reason: Gasoline prices are up 44 cents a gallon since this time last year, and nearly half of that increase comes from the weaker dollar.

A declining dollar makes foreign goods more expensive, and crude oil is a prime example. Economists estimate that $8 of the current cost of a barrel of oil — or 20 cents of each gallon of gas at the pump — can be traced to the drop in the dollar's value in world markets.

“It is one of the prices we pay for having a weaker dollar,” said Stephen P.A. Brown, director of energy economics at the Federal Reserve Bank of Dallas.

[Anarcho-Socialist]

23. A lower Dollar will not help exports as much as people think

Traditionally when a currency decreases in value it helps the domestic manufacturing sectors by making its goods cheaper abroad, thereby increasing growth. But the U.S. manufacturing sector is a mere shell of what it once was, due to the preferred practice of outsourcing manufacturing abroad.

The U.S. economy is now primarily service-sector based and no currency devaluation can help the services industry. It might have helped 10 years ago, but not in 2004.

[retread]

27. Will someone explain to me in simple terms what possible value

the Bushies see in debasing the dollar today? I'm sure there are well-heeled interests who will gain tremendously.
Could it be they are as clueless on this as they are on Iraq?

[bhikkhu]

29. I'll give it a shot

though I'm far from an economist.

When the dollar is weak, our products are cheap for foreign countries to buy with their strong currencies. If we still produced anything in this country people wanted, that would be a good thing. On the other hand, it is more expensive for us to buy the products of other countries when our currency is worth little.

When the dollar is strong, our products are expensive for others to buy with their relatively weak currencies, while their products are cheap for us to buy. This was the case during the Clinton years. Our exports were down, our imports were up.

On the other hand, after a long period of buying overseas (importing products = exporting dollars), and selling govenrment bonds (payable in future dollars) overseas to finance the debt, the rest of the world is holding a huge basket of dollars. It is in their interest that this basket should retain its value, which explains the efforts of the central banks of many countries have been doing.

In order for it to retain its value, however, they have to keep buying currency. Our fiscal policies have created a big hole they have to keep stuffing money in. Ordinarily, we would be stuffing in money too, but this administration is happy to leave all the "hard work" of supporting the dollar to others.

From what I have read, its not about the Euro or any of the other things that come up, its about the yuan. China is getting fabulously rich selling us cheap products, while its currency is held to an artificially low level.

But here is where my understanding gets a little thin, and perhaps someone else can elucidate the china strategy.

[retread]

30. Given that this is 2004 not 1964 who benefits from a falling dollar?

*