Political Discussions
The demise of the US dollar.
Posted by polybore • 10/06/09 • Subscribe to this Discussion [RSS] • Report This Topic
Topics: dollar, markets, oil, trading.
The US dollar has fallen today after a report by The Independent, a UK newspaper, that the Gulf States, China and Russia have been holding talks on dropping the US Dollar as the currency for oil trading.
www.independent.co.uk/opinion/leading-articles/leading-article-the-end-of-t...
The report has been denied by those states however the market speaks for itself.
Should we be sentimental about the dollar or just accept that it's current and predicted future weakness simply means it is not the right currency to trade in?
User Comments
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A weak dollar helps exports, right?-
kind of like airlines giving free peanuts to everyone on jets with engine failure. -
that's what Alan Greenspan said, so it must be true...
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Yeah, a lower dollar helps exports, which would improve the US economy and make us better able to buy stuff from elsewhere, thereby improving other economies. But I can't see the Chinese wanting it to go too low, since they have such massive holdings in dollars. And as long as our treasury bonds are such a good deal, I can't see the dollar slipping too much either.
Of course, it would make sense that eventually other currencies would share the prominence of the dollar. Besides now having a Euro, we've also shifted to an economic reality where we deal with a G20, not a G7, G6 or whatever.
So "the end of the dollar" is hyperbole, and so is the end of its primacy, though the end of its monopoly in world trade and investment is real enough and even desirable. -
"A weak dollar is desirable"
I'm flabbergasted... I'm going to assume that was a joke and move on.-
Reagan let the dollar slide. It hurt me personally, since I was earning dollars in Germany, but this was a time when the economy in the US began to improve.
But putting aside my own experience, that has been pretty much the conventional wisdom among economists, even if there are disagreements about what level is desirable for the dollar. If the dollar is too strong, we can't sell stuff, and if we can't sell stuff, the cheap price of foreign goods won't help one whit. -
"that has been pretty much the conventional wisdom among economists"
What economists? Proof? -
I'll give you that as soon as I'm done with the one about the earth rotating around the sun and not vice versa.
Really, though, the burden of proof is on you here. www.nizkor.org/features/fallacies/burden-of-proof.html
For now you'll have to be satisfied with www.google.com/search?hl=en&safe=off&client=safari&rls=en&ei=8nPLSrHsBJSnlA...
Perhaps a cultural difference is operative here? What has Sweden's policy been? I know Germany has been happy to have a strong currency because of its historically conditioned concern with price stabilty, but the US has not been afraid of lower exchange rates because of exports.
Of course there are also drawbacks to a weaker dollar, such as possible inflation, but arguing that there are no benefits at all---which is the only way I can interpret your initially derisive answer---is untenable. -
You make the claim that "A weak dollar is Desirable".
and then the burden of proof is on me?
Wow
www.forbes.com/forbes/2009/0921/opinions-steve-forbes-weak-dollar-weak-reco...
www.foxbusiness.com/story/markets/weak-dollar-pushes-oil-higher/
online.wsj.com/article/BT-CO-20091006-704394.html -
Well, Forbes agrees with me on the fact that the conventional wisdom has seen a weak dollar as a good thing, so you've confirmed my statement with one guy you appear to respect. But he disagrees with that conventional wisdom, as do you. Your derision was out of place, and your demand for proof was unnecessary, because I have only repeated what countless respected economists maintain.
You could have just dealt with the arguments.You could have begun that process with Forbes' argument, which shows a lot of similarity to German economic thought: "Investing in plants, equipment and startups is risky enough. Add in the uncertainty over the value of the currency, and you get paralysis." That is worth thinking about. And there is a debate about it out there. Has been for many years. You could have then added your second two links, pointing out that although a weak dollar might promote exports, it has a negative affect on fuel prices.
How the exports thing balances out against these two things is an open question for me. I don't know, but it is not ludicrous to think about it and it is rather hubristic to call the question a joke.
And what about Polybore's original question? Will that affect the dollar's stability? Or is the search for dollar alternatives a reaction to some perceived instability in the dollar? Or is it just some other powers trying to gain some economic leverage that is not dependent on US policy? -
For the record, you'll notice that implicit in my initial comment in this thread (www.blogcatalog.com/politics/discuss/entry/the-demise-of-the-us-dollar#comm...) is the notion that the dollar slipping too far would not be a good thing. In other words, implicit in that remark is some recognition of the value of price stability, just less than what Forbes is calling for.
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wp
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"Conventional wisdom" spent the last 4 years laughing at Peter Shiff.. Who turned out to be exactly correct in pretty much everything he said about the US economy.
So lets see what he was predicting in January...
www.youtube.com/watch?v=9h2x7R8pxUs&feature=related
'Nuff said -
A weak dollar artificially lowers our national debt
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Which is another reason why China can't have much interest in seeing the dollar slip too badly.
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plus we are beating them to "socialized medicine"...
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It also lowers our ability to repay it... which makes the debt "worth" exactly as much to us. But less to our lenders.
In other words, we gain nothing, but our lenders are going to be a lot less likely to lend anything in the future.
UNless of course we go into the whole "wheelbarrow of money for a loaf" proposition. in which case we're too far gone anyway.
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Of course, there's a gigantic difference between a weaker dollar and hyperinflation.
Beware the slippery slope fallacy: www.nizkor.org/features/fallacies/slippery-slope.html -
fortunately, now we have debit cards
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A weak dollar lowers our ability to invest in other countries while increasing citizens of other countries ability to purchase US assets/businesses. Having foreigners own more of US economy may provide a short term gain but provides yet another way for our purchasing power to slip away as our economy eventually recovers.
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I get your discomfort about foreign ownership. There was a lot of that going around in the 1980s during the Japanese real estate buying spree. The world didn't end though.
What I don't understand, however, is the link you make in your last sentence. I don't know what you mean by purchasing power or how it would be affected by the citizenship status of a given company's or property's owner(s). -
Foreign nationals who own American companies receive the American profits. That means the money isn't here anymore for Americans to use.
Before someone jumps on me, I am a fan of globalism and that includes some of them owning some of ours and some of us owning some of theirs. If that gets too out of balance against us, it provides an additional loadstone on our economy. A weakening dollar threatens that balance.
edited: meant foreign nationals who are keeping primary residence in foreign nations. Foreign nationals who live, work, invest and own in the U.S. are a different case. -
You mean it threatens that balance because buying US assets becomes attractive? Wouldn't that also encourage the reinvestment of profits?
I'm also not sure how it matters for our economy where the profits are physically located. If it did, then what about all our US companies that move their profits overseas to avoid taxation? Of course, that affects our deficit and therefore interest rates, etc, but it sounds like you are thinking of something else. -
If profit is generated here and wired there, we lose the purchasing power. You are right, it can encourage reinvestment, which means more profit from here potentially going there.
Generally speaking a currency gets weaker, it gets stronger, it gets weaker again, etc. etc. etc. So in times of weak dollar, more of our future profits are purchased by foreign nationals. When the dollar gets stronger, they get to keep a larger portion of the profit generated here.
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Another perspective: www.politico.com/news/stories/1009/28091_Page2.html
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