Weak dollar is coming fast

[billvon 3,107]

From SFgate.com:

Washington -- Treasury Secretary John Snow has tacitly but unmistakably abandoned Washington's longstanding support for a strong dollar in favor of a weak dollar that is getting weaker, though he continues to insist there has been no change in policy.

Stripped of the code words and elliptical references to "excessive volatility" in exchange rates, the message that Snow delivered over the weekend to finance ministers from Europe and Japan was that the dollar's plunge against the euro is just fine and that the dollar should now decline more rapidly against Asian currencies as well.

In so doing, the Bush administration has made a calculated economic and political choice. By condoning and even encouraging a cheap dollar, the administration is providing a big push to American exporters by making their products less expensive in foreign markets.

That should encourage more hiring and lower unemployment leading up to the election. The only immediate losers are exporters in Europe and Asia who have to choose between cutting prices and losing market share in the United States.

But the long-term risks are substantial. At some point, a weaker dollar will inevitably lead to higher prices for imported goods -- almost all consumer electronics bought by Americans, most of their clothing, many of their cars and much of the oil that provides the fuel to drive them.

A much bigger risk is that a plunging dollar could contribute to a rise in interest rates, as foreign investors demand fatter risk premiums before agreeing to buy hundreds of billions of dollars worth of Treasury securities to finance America's high levels of indebtedness.

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$5 a gallon, anyone?

[PhillyKev 0]

Lets not forget what will happen to the predicted enormous deficit.....it will be even larger!! Then we'll be repaying the debt when the dollar is stronger, thus making it even more expensive.

This administration has done more to trash this country economically and socially in 4 years that I thought possible. People don't realize it yet, but everything he's done is going to have significant impact in the future.

[flyinghonu 0]

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This administration has done more to trash this country economically and socially in 4 years that I thought possible. People don't realize it yet, but everything he's done is going to have significant impact in the future.

Yes but by that time, there will be a new administration to blame for it

"Excuse me while I kiss the sky..." - Jimi Hendrix

[lawrocket 3]

This is amazing. It it, in fact, a very Keynesian viewpoint. Art laffer argues for a stronger dollar. He's right wing. Milton Friedman does not care about the value of the dollar, so long as the government stays out of it.

This argues that the Bush administration is helping to fix a low dollar value. Keynes would approve.

I guess that you can credit the strong dollar given by the past administrations with this economic downturn.

My wife is hotter than your wife.

[rehmwa 2]

Now that's a good avatar

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[lawrocket 3]

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Now that's a good avatar

LIAR!!

My wife is hotter than your wife.

[benny 0]

Care to elaborate further as to why you feel Keynes would approve of fixing a low dollar value?

Never go to a DZ strip show.

[RevJim 0]

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Now that's a good avatar

LIAR!!

BWAHAHAHAHAHAHAHAHA!!!

clicky

It's your life, live it!
Karma
RB#684 "Corcho", ASK#60, Muff#3520, NCB#398, NHDZ#4, C-33989, DG#1

[lawrocket 3]

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Care to elaborate further as to why you feel Keynes would approve of fixing a low dollar value?

Sure. I'm a dyed-in-the-wool right wing supply sider. My best friend is a dyed-in-the-wool post-Keynesian lefty. He's got the Ph.D. and the 20 years experience as a professor teaching his leanings and theories. I've been privy to this knowledge through much feeding of beer.

As you know, John Maynard Keynes provided the economic theory mostly utilized by the left. It was revolutionary as compared to Adam Smith's theories (which we supply siders use, buttressed by Art Laffer and Milton "the monetarist" Friedman).

Keynes's theories had six main tenets. Most economists agree with the first three:

1) Aggregate demand is influenced by a host of public and private economic decisions and behaves erratically. The public decisions are those on monetary and fiscal (i.e., spending and tax) policy. Keynesians believe this part of the equation can be controlled by the government, with the benefits provided to the public. Keynesians and monetarists agree that both affect aggregate demand.

2) Keynesians beleive changes in aggregate demand have their greatest short-run impact on real output and employment, and this short-run lasts long enough to matter. This is why Keynes said, "In the long run, we're all dead."

Keynesians believe that anticipated monetary policy (the Administration is making this public) produces real effects on output and employment only if some prices are rigid, like nominal wages (wages in dollars, not in real purchasing power), do not adjust instantly. Here, they will not. American wages will remain the same.

3) Keynesians believe that prices and especially wages respond slowly to changes in supply and demand, resulting in shortages and surpluses, especially of labor. Thus, Keynes believes that this will create domestic jobs. Note that full employment is the most crucial goal of Keynesian economics.

4) Keynesians do not like unemployment, and believe that recessions are signs of economic illness. (We supply-siders believe that recessions and depressions are "market corrections.")

5) Keynesians seek economic stability and constant growth, believing that booms and busts are bad. In other words, never as good as a supply sider can get it, but never as bad a supply-sider could get it.

6) Keynesians care more about unemployment than inflation.

This is where this weak dollar helps. It will increase worldwide demand for American products. This will increase the demand for American work in America. Of course, inflation will follow because of the weakened dollar and necessary overseas products. But, Keynesians do not care.

The long term good does not matter, for "in the long run we are all dead." Short term, we have more employment and associated inflation and some economic stability, which is what is the Keynesian goal.

Bush is using leftist goals. Ironic, the more left-leaning people are arguing against it. I suspect it is because of who is doing it.

Are the lefties out there suggesting that the past 50 years of lefty economic thinking is wrong?

Bring it on!

My wife is hotter than your wife.

[lawrocket 3]

Yes, reverend. You are this avatar's inspiration! That very post.

My wife is hotter than your wife.

[gemini 0]

I agree that the deficit could be larger if more expensive foreign goods and services are purchased by the govt, but how could the debt service be more expensive if it is denominated in US dollars? The debt service could only increase if the interest rate rises or the balance being serviced increases.

What may happen is the US uses some of its foreign currency reserves by converting the reserves into the weaker dollars and paying off the dollar debt. Obviously this couldn't be maintained for long, but I think governments hedge just like corporations.

Blue skies,

Jim

[RevJim 0]

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Yes, reverend. You are this avatar's inspiration! That very post.

And the sig line works right along with it!

Noice!

It's your life, live it!
Karma
RB#684 "Corcho", ASK#60, Muff#3520, NCB#398, NHDZ#4, C-33989, DG#1

[benny 0]

Your explanation of Keynesian economics is mostly right yet in some cases misunderstood. Funny, I've been telling people since he got in office that Bush is using Keynesian theories, though in misguided ways.

If you take Keynes in it's simplest form you know that tax cuts are the least effective way to stimulate the economy. The government would be much more effective by keeping revenues equal to expenditures, and for that matter increasing both.

Your theory about the weak dollar helping the economy is all well and good except the fact that wages are sticky and we live in a society which happens to import much more than it exports. Things like, oh well, our entire energy supply. One of those crucial "factors of production". If it would truly shift the net exports part of the equation to the positive side, you might have a point, but I don't see this happening anytime soon.

Never go to a DZ strip show.

[lawrocket 3]

Hey, notice how another thread just developed citing the right-wing concern about the economic policies of GWB, as well as other things?

Hmmm. You think it's because his policies are left-leaning? Do you think it's because he's shutting out Laffer and Friedman and the classic supply-siders in favor of a Keynesian approach?

The right-wing will call out the policies. The left wing is calling out the man.

Benny: As I showed earlier, Keynes bases his theory, in part, on sticky wages. See Factor 2 about nominal wages not responding. The stickiness of wages increases employment, since there is a surplus of jobs, keeping labor prices from increasing.

Also, the lower value of the dollar will stimulate exports, while making imports more pricey. Thus, it will cause Americans to purchase more homemade goods. Some inflation will occur. keynesians say, "Who cares?"

In its simplest form, tax cuts do not help in Keynes. Keynes does not base his theory on anything but government expenditures. If the government controls and increases spending, the government can prevent stagnation. The tax portion comes into it, since the economy, with government intervention, is controlled partially by what the government gives and takes.

Keynes argues that the government can prime the pump, and use infusion of money and taxing out of money to stabilize the economy.

Go re-read Keynes a little. This fits right in.

My wife is hotter than your wife.

[billvon 3,107]

I think the primary problem of a weak dollar will be debt service and fuel prices. Fuel prices will be mitigated somewhat by our domination of the market; OPEC won't charge what we can't afford to pay. Debt service will be a lot tougher, and will require massive tax increases to pay for the (now much higher) interest on our debt. It's happened before.

[lawrocket 3]

You are correct, bill. That's why I am not a Keynesian, and I disagree with Keynes's policies.

I am pointing out that, for the first time in my living memory, we have a president openly embracing Keynesian thought. There have been hints of it, but this is what the left has been arguing for since the 50's.

I think had Gore been POTUS and made these policies, he would be celebrated by the left adn reviled by the right. Now that Bush is making these policies, he is being reviled by the right and reviled by the left.

I think it shows something about the inteelectual honesty of a number of those.

And bill, you are certainly an exception to every political stereotype ever thought up. I like how nobody can pigeonhole your political thought. Not even me.

My wife is hotter than your wife.

[kallend 2,146]

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The right-wing will call out the policies. The left wing is calling out the man.

.

Our compassionate conservative turns out to be neither compassionate nor conservative.

...

The only sure way to survive a canopy collision is not to have one.

[lawrocket 3]

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Our compassionate conservative turns out to be neither compassionate nor conservative.

Nope. I will agree with you. He's is a falsely compassionate liberal. Of course, "falsely compassionate liberal" is redundant.

My wife is hotter than your wife.

[PhillyKev 0]

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I agree that the deficit could be larger if more expensive foreign goods and services are purchased by the govt, but how could the debt service be more expensive if it is denominated in US dollars? The debt service could only increase if the interest rate rises or the balance being serviced increases.

What may happen is the US uses some of its foreign currency reserves by converting the reserves into the weaker dollars and paying off the dollar debt. Obviously this couldn't be maintained for long, but I think governments hedge just like corporations.

If the dollar is stronger, that means it buys more from foreign interests. Suppose that right now, $1 will buy 100 widgets from Utopia. The government borrows $100 so that it can buy 10,000 widgets. 5 years from now, the dollar is stronger and with one dollar you can now buy 200 widgets. But, the government is paying that dollar back to the lender instead. So, in effect, we got 100 widgets for the cost of a dollar that should have gotten us 200.

[kallend 2,146]

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I agree that the deficit could be larger if more expensive foreign goods and services are purchased by the govt, but how could the debt service be more expensive if it is denominated in US dollars? The debt service could only increase if the interest rate rises or the balance being serviced increases.

What may happen is the US uses some of its foreign currency reserves by converting the reserves into the weaker dollars and paying off the dollar debt. Obviously this couldn't be maintained for long, but I think governments hedge just like corporations.

If the dollar is stronger, that means it buys more from foreign interests. Suppose that right now, $1 will buy 100 widgets from Utopia. The government borrows $100 so that it can buy 10,000 widgets. 5 years from now, the dollar is stronger and with one dollar you can now buy 200 widgets. But, the government is paying that dollar back to the lender instead. So, in effect, we got 100 widgets for the cost of a dollar that should have gotten us 200.

So, using the time honored method of "follow the money", who gains from this fiscal policy?

...

The only sure way to survive a canopy collision is not to have one.

[rehmwa 2]

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The government would be much more effective by keeping revenues equal to expenditures, and for that matter increasing both.

The only thing here - "and for that matter increasing both."

AAAAAAAAAAAAAHHHHHHHHHHHHHHHHHH

The assumption here that size = effectiveness is rather scary, but then I don't see anyone buying into this on this thread anyway.

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[SkydiverRick 0]

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I agree that the deficit could be larger if more expensive foreign goods and services are purchased by the govt, but how could the debt service be more expensive if it is denominated in US dollars? The debt service could only increase if the interest rate rises or the balance being serviced increases.

What may happen is the US uses some of its foreign currency reserves by converting the reserves into the weaker dollars and paying off the dollar debt. Obviously this couldn't be maintained for long, but I think governments hedge just like corporations.

If the dollar is stronger, that means it buys more from foreign interests. Suppose that right now, $1 will buy 100 widgets from Utopia. The government borrows $100 so that it can buy 10,000 widgets. 5 years from now, the dollar is stronger and with one dollar you can now buy 200 widgets. But, the government is paying that dollar back to the lender instead. So, in effect, we got 100 widgets for the cost of a dollar that should have gotten us 200.

So, using the time honored method of "follow the money", who gains from this fiscal policy?

Halliburton?

never pull low......unless you are

[benny 0]

Well, when you're talking Keynesian theory and the governmental expenditures multiplier...

Never go to a DZ strip show.

[jumpinfarmer 0]

I may be simple minded but the week dollar is good for me.
Exports of farm products has been held down by the strong dollar for years. Now that the dollar is slipping exports have gone way up, and when that happens prices normaly follow.
As for inflation debt can be paid off more easily durring inflation. For example if I have a morgage for 100K at 4.25% (which I do) and I pay $850 per month. The amount of debt doesn't increase with inflation but the amount of dollars you get for your crops sold does. Not only is there more demand by world markets but comodity prices tend to follow inflation upwards. There for I now have more money to pay a debt that was secured in times of lower prices. The only catch is interest rates. However if you can pay back the debt at say twice the rate you had intended that shouldn't be a real problem.

[freeflir29 0]

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but the week dollar is good for me.

Not for me.......I've been traveling to the UK often and it's costing me freakin $1.72-76 for a pound over the last month!!!!!