Can we improve our economy by simply devaluing the dollar?

[Veggie Meathead]

I am not much of an economist but I think if we devalue the dollar
in relation to other currencies, other countries will have a hard time selling their goods and services to us,so our jobs will stay at home.Our products will get cheaper overseas and we will be able to reduce our trade deficit.Sounds like we can come out ahead.Any problem with this approach?

[Sinistrous]

1. One minor problem.

The US buys a ton of stuff from overseas providers. If we devalue the dollar, the cost of these goods goes up. This would lead to significant inflation -- everybody gets hurt.

[Veggie Meathead]

3. Couldn't we eliminate that problem by deciding to make those

products at home?This would create a lot of jobs at home too.

[klyon]

16. still inflationary

It will cost more to make them at home. Cheap labor abroad means cheaper products here. We need to create high tech jobs, for our highly educated people, and let the cheap labor do the labor intensive jobs until their standard of living meets ours.
We should not lower our standard of living, devaluation of the dollar will lower our standard of living.

KL

[Yupster]

2. Some positives, but not all

It makes America totally cheap to visit on vacation for Europeans and Asians which helps us too. Same for our food, milk, cd's, etc.

However, who would want to loan us money and get their interest in dollars which may be worth less and less. You would think that would drive up interest rates which would be bad for all of us.

Also, very difficult for us to travel overseas if we're having to pay so much extra for everything with their inflated currencies.

So, it's good short-term, to a point, but can't be a permanent positive.

PS - I went to college in Austria during the Cold War days. I shared a train compartment in Germany with a Hungarian family for a day. I felt very bad for them because everything was so monstrously expensive for them because their forents weren't worth a damn. I went to Hungary and had a great time. Two cents for an ice cream cone, four cents for a haircut. Twenty cents for dinner, and half price if you didn't pay in their own currency. I'd hate to see us like they were in Hungary back then.

[Veggie Meathead]

5. I think the problem you talk about with Hungary may not apply

to us because we have an enormous amount of capacity and knowhow to produce all the goods we need. Yes,it may be too expensive for us to travel abroad but that was the way it was in the 60's too when only the wealthy were able to go to Europe.

[SoDesuKa]

4. Desabilizing the Dollar

The stability of our currency is probably the main reason foreigners invest here. If we devalue the dollar, they'll take their money elsewhere. That would be catastophic.

[Liberal Gramma]

6. We've already done this inadvertently

Have you checked the dollar against the euro lately? Or any other stable foreign currency? I think the only currency we're holding our own against is the peso. I'm no economist, either, but I believe the fall in the value of the dollar has some relationship to the huge deficits we're amassing.

[autorank]

7. Interesting idea but we need an alternative

Let's see, we had the 90's stock bubble which carried us for a while.
Now, we've got the '00 real estate bubble which is carrying us.
Don't know about the currency devaluation (maybe we should ask Brazil) but I do know, WE NEED ANOTHER BUBBLE because real estate is not going to last.
Hmmmm....maybe a biotech bubble!

Free the stem cells, save the economy!

[MrPrax]

8. Tawdry Idea...

but import substitution replacment with national protectionism is WHAT the US is already practicing, albeit through accounting rules, foreign investment and legal protections provided through US law and various phoney trade agreements they signed with their trading partners...

Hope the GOP 'kill and spend' works so that Americans can still afford foreign made DVD players, CANS of pineapple tidbits at Wal-Mart and continuous debates about how the WORLD isn't co-operating with the Beautiful American Economic Mind ...

[stopbush]

9. No. The dollar is already losing value against many other currencies,

notably the Euro. In fact, Germany is suffering from a combination of economic factors, chief among them an over-valued Euro.

In the past, a weak dollar would help us sell more goods abroad as foreign currencies got better value against the dollar. But that isn't the case anymore, especially as our manufacturing base has disappeared - our goods now contain so many foreign-manufactured parts that we buy at *higher* import prices (as our dollars are worth less) that any added profits (via increased sales) have already been eaten up in higher fixed costs to produce the goods in the first place. So, the foreign currencies reap the benefit of more bang for their buck while we stagnate.

But why worry about such things? Just trust in bush and The Lord and everything will be fine!

[Only Me]

10. Since there some really smart people here...your opinions..

This is how I understand things to be. We are a nation of small
business with little employee incentives because they simply can't afford them. So many, many workers have little resources besides a paycheck. Large companies have been going overseas for cheaper labor and production costs for awhile. They say big business incentives will help some, but we would really have to give huge breaks at many levels for them to bring big jobs back here.
Would it just be tax breaks, or laxer labor laws, environment laws, what? And still it will take time to reestablish.
From your posts above, if a sound answer is a broader base, increased home base production, higher export, lower imports, technology expansion, etc.,. etc., How do you do all that and still have a strong free world trade market and operate under a huge deficit muchless pay it back?
I am not an economist obviously, so I would like to be able to understand what just plain citizens can really expect our
government will probably do with such a mess.

[idlisambar]

15. Devaluation is no quick fix, unfortunately.

stopbush is probably right. Most economists will tell you that a dollar devaluation will act to correct trade deficits by making American manufactured products relatively more competitive in domestic and foreign markets. Unfortunately the hollowing out of our manufacturing base over the last 25-30 years or so has meant that many key components that go into American manufactured goods are made abroad (auto parts, machine tools, electronics, etc.). Symptomatic of this hollowing out is the fact that it is estimated that 1/3rd of the content of Boeing's new 7E7 jet will be manufactured in Japan (and much of the rest in Europe) -- this is one reason why Japan Airlines was the first buyer for the jet. All this means that the devaluation vs. our major trading partners would have to be especially drastic, perhaps more than 50% though no-one can say for sure.

While some devaluation may be in order (and inevitable anyway) more targeted measures are necessary to solve the fundamental problem -- loss of productive capacity. Domestic manufacturers must be cultivated, particularly in those goods and components that are now dominated by foreign firms, and in which there are no viable domestic alternatives. To do this, every tool at our disposal must be placed back on the table, from government-business and inter-business cooperation (in research for example) to strategic use of tariffs. It would take a pretty big shift from the predominant laissez-faire thinking.

[Only Me]

22. We have to build and create businesses

that make us more independant upon ourselves for many of the things that are currently being made and sold to us from outside this country and limit foreign imports coming in. In essence forcing us to buy our own products and moving some of the foriegn made products off our shelfs?
I didn't know "leave it be" was actually an economic theory that is really in use. How can anyone expect that we could compete with cheap foriegn labor and products, with out limits, and still have a higher standard of living. This is so sad.

[idlisambar]

24. that's basically right

A point of history though. Clinton did try pretty hard to open Japanese markets for a while, but it did not yield fruit ultimately. Because of Japan's much exaggerated economic doldrums and the U.S. boom of the late 90's, the U.S. policy shifted back to basically going easy on Japan. Much of East Asia follows similar mercantilist policies as Japan including, most notably, China.

Laissez-Faire is very much in use -- the term basically refers to leaving ecnomic decisions to the "Invisible Hand" of the market. It translates into blind adherence to market outcomes, no matter how the market is structured.

How can we have a higher standard of living and compete with cheap foriegn labor too. This is so sad.

Don't be totally disheartened, we can do it. There are industries in which an advanced industrialized nation can compete well in world markets. Industries that require a high level of technological knowhow, particularly those that are capital and not labor intensive should be our bread and butter. It would require a political transformation, but a targeted focus on enhancing competiveness in these industries (as well as advancing into new areas) would improve our position a lot. The tough part is building enough momentum to overthrow the laissez-faire zeitgeist.

[Nordic]

11. Well. I'm glad you're not running the country

How 'bout we take YOUR money and devalue it.

[idlisambar]

21. That is how the country is being run anyway

The dollar is already highly overvalued, and it would drop precipitously were it not for the intervention of Asian central banks. The U.S. has been running a policy of dollar devaluation for a long time by abandoning manufacturing and weakening its trade position.

[burrowowl]

12. Maybe if we weren't so

dependent on OIL!

[Cleita]

13. Of course we can.

The Weimar Republic in Germany did something similar basically cancelling out their debts and reducing people's savings and salaries to rubble. I mean your life savings bought you a sack of potatoes. It sure made Hitler popular because he jumped right in and made it his cause. I think we have too much fascism now and if Boosh gets into the WH again, you can be sure Greenspan is going to be told to retire and such things will happen.

[Yavin4]

14. China Pegs Their Currency To Ours

So if we devalue, they also devalue. Thus, no benefit.

[Guy_Montag]

17. Would also piss off OPEC something chronic

maybe enough for them to stop trading oil in dollars. Which I believe is very bad news for the US economy & by extension the rest of us.

[Sinistrous]

20. I believe that, if there were to be an official devaluation, OPEC woud

convert to trading oil in Euros and the US would be really screwed.

[JCMach1]

18. We already are with our HUGE trade deficits!!!

You do not want a CHEAPER currency...

[robcon]

19. Devaluation is the recipe for stagflation

It is a "beggar thy neighbor" policy, and has never worked. England tried that in the 60's, and all they got was inefficient industries, chronic high inflation, and no improvement in economic measures.

Devaluation was used only in the days when foreign exchange was at official fixed rates, and the market valued a currency much less than the official rate, and thus the market fled from a currency. In today's foreign exchange market, official devaluations would be meaningless: the market will set the rate.

Our chronic trade deficit is being financed by others' willingness to hold dollar-denominated assets (especially China, Japan, and Middle East Petrodollars) so the decline of the dollar is less than it would be in classic economics.

[sweetheart]

23. not if you want economic hegemony

The dollar's long term stability is the main reason that foreign
funds come to pay for the borrowing of the US government (deficit).
As the dollar drops, the investment returns are severely pinched,
and drive foreign investors offshore. This spirals further until
the dollar's new value equals the demand for investors to invest.

Thus you can see, that a devaluation of severe proportions would
create a cyclical drop, unhealthy to all western economies.

To prop up the criminal regime in america, japan and china have
been buying billions of dollars in treasuries, so their currencies
stay withing a reasonable export band relative to the dollar. When
these countries drop their currency defense policies and decided to
not prop up the US criminals with their public good, then there
will be hell to pay.

The collapsed dollar will totally destroy the USA empire, and
leave the country in a weak and dangerous place, as the impulse will
be to use military force to recover what has been lost economically.