when and how does the dollar rally? or does it?

Step 1: Collect underpants.

Step 2:

Step 3: Strong dollar!

 

Funny you should say that as I didn't call you ignorant.

 

You must spread some Reputation around before giving it to tcmahoney again.

 

So I take it you're finally able to read the first sentence of a post then. Rock on.

 

Like most things economic, the "weak" dollar is a complex thing.

When the euro was introduced back in 1999, it traded at around $1.18. That means in five years' time, the dollar is down about 10% against the euro — and that's nothing, Yes the currency has been volatile short term, but long run? Not that bad, really.

I find it particularly interesting that the Europeans are really howling at the declining dollar. Folks are moaning about the fact that Bush's "dollar policies" are "incoherent" but, quite typically, he's a lot shrewder than most think. While John Snow says he's for a "strong dollar" the fact is that the weak dollar is being leveraged by the USA as a disciplining mechanism on these pretty moribund economies.

Because you see, among the many reasons for the weak dollar is that European economies are so lackluster. In effect, European countries and the big Asia economies have been riding on the back of our trade deficit for quite some time. I've seen articles that have said up to 80% of Germany's economy is driven by exports. These countries need to grow internally, and not be dependent on the USA to buy up so much of what they make, while they hamstring their own economies with outdated work rules and other non-growth policies.

Right now, the only way we could "strengthen" the dollar is by having the Fed raise interest rates. But there's no compelling reason to do that, as inflation is still very low here.

 

Right on point sir.

The fact is that both the Japanese and Europeans, particularly the Germans, have ridden along on an export wave for years now. It has hidden the basic weaknesses in their domestic economies (which they knew but didn't have to acknowledge).

Now all of a sudden they're facing the facts: the US isn't going to carry them any more. They're already howling and will howl even louder as the Euro inches towards 1.40. Tough beans. Their economies are simply not sustainable as currently structured and they're now getting the wakeup call they needed.

If they can't manage to develop enough of a domestic market to maintain viability, that's their problem, but they're not going to be able to export their way out of their problems any more.

Karl is right: President Chimpy "Stupid" BushHitler is wiping up the floor with them once again.

 

Good point. But it's only part of the beauty of having a weak dollar for now. The other good part is we get to export more of our stuffs over to those countries.

Also, with this de facto weak dollar policy in the near term, we're basically paying our debts by printing more money. We owed them $1 trillion, fine, we'll print $1 trillion to pay them back. Yeah at the end of the day, there're $2 trillion around and a dollar that's worth only half of what it used to be. But we'd be out of debt and ready to pursue our long term strong dollar policy yet again. What makes it all possilbe is the fact that foreigners want dollar, at any cost. When this changes, when there're major upheavals inside or outside of the US that irrevocably weaken the US dominance in the world, then it becomes a different story.

Basically, with the situation we're in now, a weak dollar in the near term is a strong dollar in the long term. Snow is more or less telling the truth when he says he wants a strong dollar while at the same time taking no action to prevent the dollar from falling lower.

 

Except that even the EU ministers said that their long-term goal was dollar parity. And that was the US goal as well.

This is one of the greatest issue redirections in this forum's history. Your theory is that the US is letting the dollar go slack because.... because.... it's going to help the rest of the planet redefine German works councils rules? I'm sure the forex markets will be pleased to know you've figured them out. Forget the growing national debt and the foreign ownership of it, forget the long-term growth potential issues, forget the fact that those other "outdated" countries are the ones making the stuff that Americans actually want to buy -- no, this is about John Snow influencing the world's labor laws. Of course. Why didn't anyone else think of that?

And right behind you is Archer, who I thought had left forever. Brilliant.

 

You are right Bill...

Congrats, really. I mean right now you basically got us to the point where we pay for the war in Iraq in one way or another. Perhaps we should just stop funding your deficits with our surpluses. And yes, we do have a choice. I can assure you that many are thinking twice about future investment in the U.S. with the prospect of their dollar assets practically being defaulted.

Another thing some of you know-it-alls conveniently forget: a weak dollar has the tendency to push oil prices higher...

(and that affects everybody)

 

Hooked on Phonics Saying that you are spouting ignorant comments is not the same as calling you ignorant. Plenty of smart people* say stupid things. Learn the difference.

*Just so there's not confusion like before, I'm not calling you smart. I'm simply pointing out that smart people don't always say smart things.

 

Good point. And that's one danger we need to prevent. It's OK for the dollar to decline like in the last couple of years in a gradual and orderly fashion. But it's NOT good if it goes down abruptly or drastically to the point where foreigners stop investing here. Hence, Snow needs to keep talking about our long term strong dollar policy. Not an easy job. I don't envy the position he's in now.

 

Why only cite oil prices? A weak dollar will raise prices on everything -- raw materials, semi-finished goods, and finished goods. There are too many things that America just doesn't produce any more for us to be self-sufficient, even in the medium-term.

Just thinking a bit more about The Keller Theory, I think I can boil it down to five words: Lower dollar screws the planet. Ultimately, if he's right, that's what it's really about: punishing the Germans and Chinese for making things better than we can. Which is a lovely foreign policy. Too bad that it also drags down the US economy with it. If Karl is right, what it really means is that BushCo is deliberately hurting America. Again, just lovely. And the reactionaries think that only the liberals want to do that.

 

The problem that YOU and others like YOU have with folks who have different IDEAS than you is that you ASSUME such ideas are a mere "redirection."

The forex markets give two s-ts about whether the dollar is high or low. All they care about is that currencies are valued appropriately relative to one another. Then again, you're the sort that applies simplistic ideas when the facts don't fit your view of the universe.

You guys are clueless when it comes to economics, and everthing else in the realm of politics as well, because, in your fevered imaginations, it is all about how the USA is either wrong, misguided, screwing up, and other preposterously negative notions that fuel your smug certitude.

Fact: we are simply not going to do anything to intervene in the dollar's value relative to other currencies. Nor should we. We need to grow our economy, create jobs, and keep taxes low. Our deficits TODAY (and not long-term structural issues, a different kettle of fish that has more to do with unfunded entitlement liabilities) take a back seat to those objectives.

Fact: European and Asian economies have had a free ride with out trade deficit. Now, we're going to start selling to them, not the reverse, and that's why they are doing so much moaning and groaning. The jig is up. So they'd better get their act in gear, or otherwise they are going to have a very valuable currency being spent by THEIR folks to buy our stuff, not THEIR stuff, because no one will buy their high-priced stuff.

Simple, baby, it's economics.

 

I figured that was self-explanatory. But you are right, I should think more about Axis Alex and his fellow brethren...

 

Q.E.D.

 

Quidquid latine dictum sit, altum viditur.

 

Karl, despite the unwarranted generalizations about "you guys", I thought you were doing pretty well until the statement above.

Since when is the Iraq war an "unfunded entitlement liability" ?

 

It's you who took this in the direction of Snow punishing Germany's works councils, not me. Are you backing down from your original statement?

That's true -- and right now, they don't like America's long-term economic growth potential, especially our debt accumulation. Hence the lower value on our currency. Simple, baby, it's economics.

It's called the "reality-based community", as opposed to the faith-based community that so fervently backs your preferred candidate. Reality is that the global financiers are souring on America relative to other industrialized countries. Faith is that there's some deep-secret reason for why that's going to make us stronger than ever.

But I thought that this was a deliberate attempt by BushCo to stop the works coun... oh, I see, you are backtracking from your original statement. OK then.

I'll say the same thing that I said to Ian about this: your party has abandoned you, Mr. Small Government. Time to face reality -- there's no desire among the Republican establishment to substantially reduce subsidies of any kind.

They sell us stuff. They give us their stuff. We give them our cash. Where's the "free ride" there? Sounds like just straightforward global capitalism.

[Zell]What are we going to sell to them, spitballs?[/Zell] Really, one of the hard realities that you and others are going to have to face is that the planet without America would be better-off than America without the rest of the planet. We do not produce enough of anything globally substantive and special to be a net exporter, regardless of currency value.

The truest thing you've said. And a falling currency is not a good long-term economic indicator.

 

Yeesh. Rather than look at the real numbers, or what words really mean, you guys would harp on emotionalisms.

We have a $2 trillion -- that's right, trillion -- annual Federal budget.

The Iraq war has cost to date about $150 billion. It's not cheap, but it's manageable. This cost will eventually decline and go away.

No, the unfunded entitlement liabilities are the cost of Medicare and Social Security as the baby boomers retire and we have fewer workers to fund this unsustainable "pay as you go" system.

 

Where do you live??

Oh, I see, it says you live in "limbo land."

How quaint.

If you live here, go somewhere else, since you clearly don't think much of the USA.

 

Instead of the knee-jerk "love it or leave it" statements, stop and think about what he's saying. He isn't preaching hate of America, simply pointing out that the US needs the world a great deal. Which isn't to say that that relationship isn't mutual, because the world needs the US as well.

 

Thanks for reverting to the "liberals hate America" meme, the Godwin's Law of the GOP.

God forbid anyone actually look at the facts and conclude that the United States (population 300 million) is not mightier than the rest of the planet combined (6.1 billion). God forbid anyone actually do the math and see that while the US is still #1 in overall GDP, our growth rates are lower than 8 of the next 9 largest countries, and that the economic size of the combined EU is greater than the US ($11.2 billion vs. $10.9 billion, before the recent $ drop vs. the Euro). And God forbid anyone use Economics 101 terms like "competitive advantage" to explain why efforts by BushCo to "punish" other countries that believe in global markets through deliberate currency devaluation will not be good for any of us long-term.

How terribly anti-American of me to rely on facts to support my argument in your faith-based community!

 

A continually declining currency is essentially a hidden tax on the population. Ask the citizens of Italy, Turkey or Argentia how much they enjoyed it when their currencies declined steeply. Another reflection of the continual decline of our dollar is seen in USA property values. I don't feel the long term implacations are adressed adequately by either party.

 

Hey, 150 trillion here, 150 trillion there and pretty soon your talking about real money!


Anyway, Karl, my name is Jay, not "you guys". I am the only one to make this statemment, so please don't lump me in with anyone else.

And yes, the budget deficit is due to several factors, some of which our current president could control (cough..cough..tax cut...cough...cough... Iraq) and some of which were already teed up for him to slice into the rough)

Anyway, is Medicare really "underfunded" in this years budget ? I know its projected to be underfunded in the future, but now ? Is this a fact or an "emotionalism"?