NYT: A Field Guide to the Falling Dollar

[DeepModem Mom]

A Field Guide to the Falling Dollar
By DANIEL ALTMAN
Published: December 5, 2004


JUST what will the plummeting value of the dollar mean for the American economy? The answer is not quite as simple as "less imports, more exports." Depending on how investors behave, the dollar's downward drift could cast anything from a benign breeze to a hurricane.

If the dollar loses value slowly, giving businesses and investors plenty of time to adjust their spending and portfolios, the main effect may be to make the American economy more competitive. That would be a happy conclusion.

But if the dollar takes an abrupt dive, the consequences may be dire. Companies and consumers alike may find themselves stripped of purchasing power and ground down by sky-high interest rates.

The repercussions of a long-term decline in the dollar could be far-reaching. A permanent change in the relative prices of goods and services produced in the United States and abroad could hamper some important and long-running economic trends, like the growing productivity of the American work force.

"On balance, it's going to be good for people invested in the manufacturing sector of the United States if this thing is permanent," said Samuel S. Kortum, a professor of economics at the University of Minnesota. "It sounds very mixed and potentially even sort of bad if you think about it for the whole economy."...


http://www.nytimes.com/2004/12/05/business/yourmoney/05doll.html

[lutefisk]

1. "15, 20 percent mortgage rates"..........ouch!

With the "reverse Midas touch" pResident in the White House, this warning should be taken seriously:

"The danger is if the decline in the dollar gets too severe, that could really drive U.S. bond yields up like it did in the early 80's," Mr. Wyss said. "Then you could be looking at 15, 20 percent mortgage rates again.

[Ernesto]

17. Oh great!

Just what the fundies must be praying for: The resurrection of the st. ronnie '80s economy.

[Thurston Howell IV]

2. Did you see the picture of the South Korean bank clerk counting US $

That was a shit load of $100s!

[HuskiesHowls]

3. And the current administration in Washington

wants a stronger dollar.

Hmmm....something seems amiss here!!!

[izzie]

4. I have to put this into family terms

and it does not seem to work for my family's pocket book.

[The Zanti Regent]

13. no, you have to put this in BUSH CRIME FAMILY terms...

which make the Sopranos look like the Brady Bunch!

[steely]

6. Just last week, * said the falling dollar was good for business.

I'll never figure that one out.

[Massacure]

7. It is if it is slow enough, yes. Right now it is on a crash course though.

Plus the textile industry is set to crash and burn start January 1 when the fiber pact expires.

[steely]

10. Leave it to the shrub to twist the facts.

eom

[DBoon]

8. They have a "program" to make the dollar stronger

just like Saddam had a "program" to build WMD.

And both "programs" are just as real.

[steely]

5. How can the US be more competitive if the jobs are "off-shored"?

just a dumb question from a non-economist.

[many a good man]

11. "Competitive" means cheap labor

As the value of the dollar declines, American goods become relatively cheaper in foreign markets, thus increasing sales. In theory this should cause an increase in manufacturing activity in this country.

Theoretically, it should slow down the loss of mfg jobs here because our labor becomes relatively less expensive. It should slow down outsourcing, too, for the same reason. But there are at least two main reasons why these logical assumptions will be proven false by current circumstances:

1) the wage differential between US and foreign workers is still astoundingly huge. Even if the dollar tanks 50% it will be insignificant when compared to workers earning 1/20th of what American workers get. Furthermore, our main competitor in mfg is China -- who is keeping its currency artificially pegged to the USD.

2) Mfg has declined significantly in the past 3 decades so any boost in that sector is less likely to benefit the economy as a whole.

I think the devaluing of the dollar signals US competitive weakness. Our chief product right now is debt. We are taking advantage of the interdependency of the world economy to blackmail the central banks of our competitor nations. But they have already stopped investing in our stock market. When consumption in the US falls because of low wages, foreigners will have less incentive to play our little game. If they choose to stop buying our debt, all the consequences mentioned in the article will happen: stagflation, 20% interest rates, etc.

But look on the bright side: hopefully Europe will buy up all the once-great US corporations and bring a little enlightenment to our economic policy...

[steely]

12. Thanks for the explanation.

[cliss]

16. I loved your sentence,

"Our chief product right now is debt". How's that for the World's Strongest Economy?

Businessman in the US: "So, what does your country specialize in?

Businessman in India: "Oh, we have a very labor-intensive economy, so our forte is in hand-made goods. What about you?"

American: "Oh, we have cornered the market on debt. We owe the world so much money, you can't even imagine".

Now, I read the article about Steve Roach (he's the chief economist for Morgan Stanley) and he urges the government to let the dollar fall. He wants it to go down really low. So I think we've got quite a bit further to go before they intervene (if they intervene at all).

The thing that got me about his speech was, nowhere did I see any mention of how we need to get out of this morass. Like maybe improving our manufacturing, attracting the brilliant problem-solvers (who by the way are leaving our shores), maybe taking care of our DEBT!

I just had this feeling that they don't feel that it matters. Just tinker with the machinery, and presto you've got it. Maybe they think we can still stay on top even though we haven't made our economy better.

I'm not sure they understand this point.

[William Bloode]

20. I can see the hints of "stagflation" now.

I buy allot of goods from Europe, and what used to cost me $15 now cost me $19.20. A $4.20 increase in the cost of my goods, and yet i make no more money. Thats a $4.20 increase in less than 1yr.

How long till this makes it's way to our shelves? Wages are stagnant or falling, and purchasing power is going down.....good times, good times!

[kineneb]

21. shelf prices

are already creeping up. I see it at the grocery.
The foreign press has been covering the dollar issue for some time; I have been reading stuff on it in the British and German daily papers online.
BushCo want the dollar to go way down so they will have an excuse to starve the Fed. Gov. and do away with all the social programs. Problem is they may get more than they expect (as usual, see Iraq) by doing this.

[RedCon1]

22. What does "pegged to the US dollar" mean?

I have heard this referrenced numerous times and don't doubt its veracity but I don't understand it or its implications.

[many a good man]

23. FOREX

Since the 70s, foreign currencies have been traded on the foreign exchange (FOREX) market. Market forces exert their influences on the rates of exchange but there are many ways a nation can influence the trading. China has publicly stated that it will do everything within its power to keep its currency, the renmimbi, on an even par with the US dollar.

[RedCon1]

28. Thanks

I suppose they do this to avoid the global ramifications of a complete US currency crash as this would affect their own booming economy?

[KurtNYC]

39. Picture a store with one big customer

when you cut off that customer's credit, you shut out your biggest customer.

[Deja Q]

9. Less imports? Funny, that, as most of what we need comes FROM imports

Awesome job, *. Pity this shit didn't come out 35 days ago. x(

[HuskiesHowls]

14. All this WAS out there 35 days ago

its just that the MSM didn't want to report it, and the fundies wouldn't believe it anyway (even now).

Just keep your pantry stocked, do your gardening, and learn barter skills!!!

[Ernesto]

18. You got that right HH

This downward creep has been going on all year, They just don't know or care about "nuance" even when it's their ass that will ultimately end up on the cross.

[bhikkhu]

31. It was out, but it was complicated

One of those things Kerry could explain, but the media would just shake their heads and complain of shades of grey and long unquotable sentences.

[Chicago Democrat]

15. If I was going to plunder a country.... Debasing the currency would be the

easiest way...

Unnoticably the US government is basically stealing from every US dollar holder/earner a single penny at a time.

[TahitiNut]

19. Interestingly, the article doesn't mention foreign tourism

I'm wondering how much the precipitous drop in tourism (since both 9/11 and the Iraq Invasion) is affecting the exchange rate. Ususally, when the dollar drops, it gets somewhat offset by increased tourism as foreigners are attracted by Discount America. I don't see that happening this time. I just don't see foreigners eager to visit this country.

[barb162]

32. I saw a short item on TV a few days ago where British

tourists were loaded with shopping bags in NYC. Whether large numbers are coming, I have no idea

[DeepModem Mom]

33. I saw the same story on UK news this morning about Brits shopping in NYC

so they must be coming over in large numbers to take advantage of the weak dollar -- and they'll also be able to benefit from the deep discounts we're hearing about.

[RPM]

24. Trouble In suburbia....

Hmmmmm - weak dollar makes petrol super expensive and folks can't afford to drive their 4 MPG SUV to their soon-to-be outsourced job from their upside down mortgaged cookie-cutter McMansion.

Yup - should get interesting fast....

[Chicago Democrat]

25. No we got big reserves in our Iraq colony so should be no problem

[RPM]

26. not if those reserves have to be sold to pay our debts...

... those debts are mounting quite quickly these days. And the chinese and japanese will get pissed when we start paying US gvmt debts in worthless paper... They'll want something - oil works for them.

Next thing you know china demands payment in oil.

And ** refuses

And China muscles the US

And ** gets his itchy finger on the big red button....

And - GOOD NITE!

[nashville_brook]

29. my question is

is it worth it now to take a little more debt
to get a whole bunch of land and a solar house that's off the grid

i'm worried about extra debt, but you might as well lock into a good mortgage on "last call."

plus, its a way-cool house that would be perfect in case bush goes nookewlor.

[RPM]

34. hmmmmm

"is it worth it now to take a little more debt
to get a whole bunch of land": hard to say... the question that I wonder about is who will fall first - the individual creditors or the banks

"in case bush goes nookewlor" - sorry, I'll take the fast incineration; the slow tourture death would suck . Keep a gun handy so you can end it sooner.

[RawMaterials]

37. I would say buy A GUN lots of ammo, and Gold

when 1000 dollars is worth i penny gold can be sold to buy food and or new money when everything is stable Again. or any other currency if you want to leave the good old USA.

[nashville_brook]

43. i feel silly for even thinking about it

but, i can't help it. i've always wanted to live off the grid, and now seems to be a really good time for it.

[Chicago Democrat]

27. kick

[BrightKnight]

30. The Regan administration tried to spin a weak dollar.

The Regan administration tried to spin a weak dollar. The media made him eat his voodoo economics lunch. This is only about bad government.

[Francine Frensky]

35. But what happens if they boycott American products??

Read these two sentences from the article:

"Imports are becoming more expensive for Americans, and exports from the United States are becoming less expensive for foreigners.

To this point, the dollar's depreciation has not narrowed the nation's trade gap. "

Hmmm. Even though the dollar is at a record low, and has been falling for at least a year, our trade gap has not narrowed?? This must be of some concern to economists. This breaks the basic law of supply and demand.

Just a week ago I read an article about Europeans boycotting American products (30%), or being less likely to buy them. And that's happening because of Iraq and one man: George W. Bush.

What happens if the American name becomes mud and nobody wants our exports and our dollar falls so low that we can't afford imports anymore....what happens then?

Something tells me this is not going to end pretty.

[neweurope]

36. 30 percent sounds way too high...

...I don't think that you have to be all THAT worried. I for one am one of those boycotting and if 30 percent of my compatriots did the same I'd be glad indeed.

(Sorry folks but boycotting is pretty much the only thing somebody over here CAN do.)

[peacebird]

38. hey neweurope -

i have another thing you can do - help a fellow DUer get a job in europe! i would LOVE to get out of amerika......

:toast:

[neweurope]

41. Certainly would like to be of service,

but enough of my friends are out of jobs *sighs*

[peacebird]

42. and i suppose the world would be better served by DUers

staying put, trying to minimize the damage of the current mis-administration... *sigh*
best of luck to your friends, and thanks anyhow neweurope!
:loveya:
- still, escaping to europe is such a lovely dream, it makes me smile just thinking about it!

[KurtNYC]

40. Perhaps most bought nothing US in the first place

That, at least, is what Keith Reinhard, CEO of the global advertising agency DDB Worldwide, found in a study he commissioned in 17 countries. People felt exploited by global expansion, inundated by our entertainment products, and put off by our arrogance. His findings were echoed by the annual NOP World survey of power brands. That study of 1,000 consumers in each of 30 countries found that over the past two years, the number of consumers who use U.S. products from companies such as Microsoft and McDonald's had dropped to 27% from 30%. Non-U.S. brands held their ground in the same period.

http://www.organicconsumers.org/corp/overseas110304.cfm

That adds up to a 73% boycott in effect.