Question re Weak Dollar Policy

[Yavin4]

In an effort to boost exports and stop job losses in the mfg sector, the Bush admin is aggressively pursuing a weak dollar policy which makes our imports cheaper.

Now, my question is this: Isn't pursuing a weak dollar policy when you have massive deficits a really, really dangerous thing to do? With a weak dollar, who will buy our debt?

[Spazito]

1. I am not an economist but....

I see their "aggressive pursuit of a weaker dollar" is a red herring to try and divert attention to both the falling value of the US dollar vs other currency and also to hide the fact that foreign investment is fleeing the US at an alarming rate. When you look into who controls the "paper" on the US debt, you will find that asian and european countries own that paper.

[Boom_cha]

2. Yes, you're exactly right

This article addresses in detail the issue you raise

The Return of Crowding Out
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=26122

see also
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=1692

[leftyandproud]

3. NO, this is exactly what they want..

weaker dollar means they are INFLATING the currency...printing endless amounts of greenbacks to lower the value of each buck you spend...This is bad for savers...but good for people in debt...It allows you (and the government!) to pay off big existing debts with CHEAPER and easier to come by dollars. They know they can't pay off the huge debt with a strong dollar, so they inflate it...weaken it..keep printing money, and pay off old debts with devalued currency.

[Spazito]

6. The fallacy in that is the foreign debt aspect....

if the value of the US dollar drops then it costs more to pay of less of the debt. If Russia, China, etc switches to the euro then the US must pay their debt based on the value of the euro NOT the US dollar, it would increase the debt because it would be calculated on the value of the euro, not the US dollar.

[papau]

4. Two things will happen - exports increase - and interest rates rise

usually there is a delay in the interest rate rise because countries like to hold dollar reserves -so the economy kicks upward

Then there comes a point when countries re-balance their reserves amoung the EURO, Pound, and dollar - and if others are not ready to step up and hold the dollars - interest rates must rise so as to attract buyers of those dollars (a currency plunge is a wipe out of the current standard of living - hell of a price to pay for Bush incompetance - so we usually want only a small weakening of the dollar).

In the past the jobs from the export rise and new investment in production made up for those projects/jobs lost due to interest rate caused lower capital investment - indeed an unfair trading claim was usually made against us. We paid for the stimulus with a slight reduction in the standard of living from import items costing a bit more.

Now the internet has made a rapid response more likely and some do indeed fear a interest rate response will hit in months rather a couple of years. I do not. Rates will indeed rise because of the deficit - I am on record as saying 5% 10 year rates by 3/31/05. I do not believe the dollar weakening will cause/add to the problem - not unless we give the finger to the world and really weaken the dollar. I just do not see a strong enough recovery to cause an inflation problem - let alone one that would get out of control because of a weak dollar - and I have not been wrong in the last 2 minutes - I hope.

Well - I guarantee the above is worth what I charged - Zero!

Good Luck - to all of us and to the economy whose job creation ability we really need restored.

[Art_from_Ark]

7. Exports will not necessarily increase

They have tried the weaking of the dollar approach vis-a-vis Japan on several occasions with dismal results. Nixon tried it first in 1971, but it is hard to say if it had much effect.

Reagan tried it in 1985, when his pressure pushed the yen up from 200 yen/dollar to 160 yen/dollar almost overnight in response to teh growing trade deficit with Japan. Naturally, America was able to sell a few things more cheaply to Japan (like oranges), but this was more than offset by the higher cost of imports from Japan, imports of items that the US was either no longer making, in the process of no longer making, or could not compete with the quality of Japanese products (like cars). As a result, Reagan then pressured Japan to "voluntarily" limit its exports and move some of its manufacturing base to the United States.

Bu$h Sr. also tried it, with much the same results. He even brought an entourage of automobile executives with him to pressure Japan to import more American cars that were now "cheaper". However, given that American car companies were competing against 11 Japanese domestic car companies that were putting out excellent products, steering wheels in American cars were on the wrong side, most of the cars were too big for narrow Japanese roads, American car companies only had a primitive service network in place, and American cars were viewed as breaking down too often, it was hard to sell American cars in Japan, regardless of the cheaper dollar.

[Spazito]

8. Exactly!

A cheaper US dollar will not do what the Bush admin is claiming it will do. Add to that the export of manufacturing to other countries by US companies it does not look good.

[Fixated]

5. ....

I have read that Snow is talking the dollar down without too much influence from the administration.