Should the United States Worry About the Dollar?
One of the most contentious economic issues between the United States and the rest of the world is the parity of the U.S. dollar. Historically, the United States has not included the value of the dollar as a strategic element of its international strategy and leadership. In so doing, the country is missing an important way to create solidarity and loyalty among our trade partners and fair treatment for our creditors.
The U.S. Treasury does regularly declare that the United States prefers to have a strong currency. These statements are merely aimed at reassuring the foreign holders of U.S. debt. But fundamentally, the Treasury or the Federal Reserve could not care less. The presiding rationale is that we manage ourselves and it is up to the rest of the world to adjust to the risks.
There are four reasons for this.
First, every country in the world has a responsibility for its international balance of payment and the treatment of its currency. It is paradoxical that U.S. administrations have repeatedly tried to push some countries (especially Japan and China) to "act responsibly" and revalue their currency to reduce the trade imbalance with the United States while the U.S. has never accepted the same from its trading partners.
Second, and increasingly important, the dollar is important for our foreign trade. This helps the U.S. to manage its significant foreign debt. Now more than ever, the U.S. needs to count on the goodwill of our foreign creditors to finance the explosion of our fiscal deficit, especially the recent expenses to support the financial system. When a country owes $3,380 billion to its foreign treasury holders, it is more than an embarrassment that the U.S. dollar has depreciated by approximately two thirds vis-à-vis the Euro since its was launched in 1999.
Third, as the most important economic power in the world, the United States, has a responsibility for the good functioning of international trade and capital markets. Its leadership has been affected by the financial crisis that originated in the United States and a "laissez faire" attitude of the Bush Administration, corresponding with a period of dramatic weakening of the U.S. dollar. The ability of the United States to exercise its leadership in the free world is completely correlated to its willingness to act responsibly in its monetary and fiscal policy.
Fourth, the price of oil and commodities is generally denominated in dollars, often giving the illusion that the U.S. dollar is the standard. In fact, the demand for those products comes from countries in various monetary zones. What happens, in reality, is that the dollar price for oil generally increases when the dollar drops and decreases when it increases. This makes the cost of these commodities higher for U.S.-based industries than for European and Asian competitors. The hike of the price in 2008 coupled with a weak dollar is one of the factors behind the petrol price hikes that we all experienced.
The reality that all of this creates -- the Euro bond market has now exceeded the U.S. bond market offering foreign countries a really liquid alternative for the first time. The fact that the United States allowed its currency to drop creates a problem for our trading partners as well as for our creditors. That situation does not create the right atmosphere for international trade talks.
As the United States is engaging in a more constructive dialogue with the rest of the world, it is essential that a realistic currency policy be part of these conversations. After all, caring about the status of the dollar is in the U.S. own best interest.
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Since we're in such a financial bind, how can Obama give another country billions of our dollars, so they can drill for oil off their shore? This I heard a radio talk show.
usuallty U.S. Aide means they buy stuff from U.S. Companys.
You heard it on a radio talk show? That must be gospel!
Foreign aid is less than 1% of our discretionary outlays, look at the size of the state department (where all foreign aid comes from, in addition to all embassies, guards and staff for same, and lots of other stuff) compared to the military.
We spend millions (with an M) on foreign aid for a nation, and billions (with a B, 1000 times as much as a million) on a fighter that can't fly near navy ships, other planes, or above a microwave oven...
Get is straight.
On his first day of vacation, Obama played golf for five hours with a UBS Executive. This is the same UBS that wrote the "Securities Modernization Act", for which Phil Gramm was awarded a UBS Board Seat for ramming it Congress while chairman of the Sneta eFInace Committee. This is also the same UBS which has paid $775 million in fines to the Federal Government for refusing to divulge account information of 12,000 US Tax dodgers. This is the same UBS which received billions in TARP funds the same week they paid their fine.
Last week Central bankers met in Jackson Hole to celebrate Greenspan, the man more responsible for the current economic meltdown than even Bernanke, Geithner or Paulson, three major players.
If you think our Government let alone the 80% privatized Federal Reserve, is any longer of, by or for the people you are an ignorant fool. Human beings are merely fodder for Corporations. Unless you happen to have been born a Rockerfeller, Rothchild, et al. Our Founding Fathers are rolling in their graves.
Foreign reserves around the world are held in dollars because so many transactions around the world are in dollars. When the dollar destables, then transactions will trend away from the dollar. This will cause countries around the world to dump their dollar holdings in their foreign reserves. Once it starts to crash, the dollar decline will accelerate because of this.
yea! someone besides me can figure out human nature!
Interest is never in anyone valuations when speaking about monetary policy !
Yet of all the things you mention in this article Interest is the one thing that is most destructive.
Interest paid to the Central Banking System when the USA can issue all the Interest Free Debt and increase or decrease the money supply to control inflation.
Those who would have a one world Government and destory the U.S. Constitution, Bill of Rights and take away the independence of the United States for a place in the North American Trading Block .
Please do not expect us to help you and the Central Bankers bury our Flag for a government run of the Bankers by the Bankers for Private Profit. Economic Slavery is not in my countrys future.
Devalue the Dollar if they will not increase value of their currency to balence the trade. See if they like that policy.
In the end who really cares the Federal Reserve Dollar does not repersent true value in the USA it is a Fictional thing with Fictional value.
The ability of the United States to exercise its leadership in the free world is completely correlated to its willingness to act responsibly in its monetary and fiscal policy.
How about Robert Rubin destabilizing the Peso, for fun and financial gain, as a sign of our financial responsibility? WE have not reformed our banking practices, ..... no wonder the influence of the dollar is practically in free fall.
Reducing the value of ones currency often doesn't help the trade deficit much and usually doesn't result in more than token job creation for the devaluing country. When import prices go up, domestic companies tend to increase prices rather than take market share. This means they make more money without investing more capital. The value of the Japanese yen went from 600 in the 1950s to 60-80 by the mid-90s, yet the trade balance with Japan remained high the entire time. When import prices increase, the importing country usually just experiences inflation. Anyone really think if the Chinese yuan doubled that textile/apparel jobs would come back to the US? US consumers would just pay higher prices, and retail stores would make less money, build less stores (hurting construction industry), and cut employees. Also very important is that foreign investors will shy away from investing in the US if they believe the dollar will depreciate over time. US investors will also invest out-side the US if they believe the dollar will depreciate over time. This happened from 2003 to 2008, when money went into emerging markets and commodities as the dollar declined in value. The exception was the brief period in early 2006, when the dollar strengthened at the top of the real estate bubble. If you were a manufacturer and you knew that the Chinese currency would appreciate substantially and the dollar would depreciate substantially, then they'd usually chose to invest in China.
How precisely would you prop up the dollar? I don't think we can afford to borrow money to buy foreign currency right now.
Anyway, the nature of the beast is that salaries model productivity, and that as our ability to produce goods fails to increase as quickly as other nations labor productivity, we will get less stuff per dollar. Whether that occurs by stagnant wages or by inflation only matters to the rich and those in debt. The former hate inflation, the latter love it.
"the parity of the U.S. dollar. "
There is no parity for the dollar. The game has been fixed since the end of WW2.
If there were free trade, currency valuations would adjust and wipe out trade deficits, right? The game has been fixed for a long long time. It has no reflection to theory which is mostly realized as modern propaganda and as the foolish enablers watch the chickens come home to roost we may get to experience the pinch of a bananna republic. (I think that permitting OPEC to extort U.S. dollars from around the world has been our biggest crime and you can figure out who has shared in this)
To some extent nations with large militaries can run an uneven balance of trade for some time. Generally this ends when the nation ceases to be a world power (Britian in late 1940's for example).
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