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November 24, 2003

Dollar Vs. the World. What Me Worry?

Dollar Vs. the World. What Me Worry?


If anyone came up to you and asked the question:  Right now, you and your doppelganger in, say, Fredonia, both have equal net worth, without you or she doing anything different, with less than 2 years your savings will total 40% less, how would you feel?  Would you want to change places, maybe? Of course, if that question had been posed about 3 years ago, and Fredonia switched for, say France, the above result would have been pretty much what has happened.  This means that our European friends, without working any harder (in fact, they probably had more than twice as many paid vacation and holidays) and without doing anything wiser than participating in the right currency zone, in this case that of the Euro, have achieved these amazing results.  Beats smart investing, doesnít it?


Of course, if you live in the States and havenít thought to travel to the Old World, you probably wouldnít have noticed.  Of course, being here in Rome, Iím faced with the situation on a regular basis, every time I open my wallet or go on line to check my credit card account, Iím looking squarely at the fact that it costs me about $1.20 for every Euro I spend. No big deal, I suppose, when youíre talking espresso or even a pizza but something a lot more meaningful as you bring up your hotel bills on the in house TV screen.  Iíd rather be bored by the BBC than face that music.


The reason stateside you hardly notice the exchange rate changes has something to do with the fact that most of the goods you buy are manufactured in countries that tie their currencies to the dollar, like China, and in the desire of my companies not to lose market share in highly competitive markets.  So Toshiba or Sony arenít likely to raise the cost of their gadgets because they are taking in less Yen on every sale.  Instead, they too have shifted manufacturing facilities into the ďdollar zoneĒ countries while their central bank, the BOJ, actively tries to push down the Yen by buying up dollars on the open market flooding it with Yen, instead.


In Wal-Mart, prices stay the same and even as the Bush government tries to push up the price of underwear by slapping tariffs on the Chinese and has pushed up steel by protecting that industry from the rest of the world, despite a ruling to the contrary by the World Trade Organization.  For Bush votes in the keystone state, youíll just have to pay higher steel prices, at least until after the election or if a trade war breaks out, as the Europeans are threatening.


Japan and China are the major props keeping the dollar from falling even farther.  But again, I ask the rhetorical question, why should any American worry about the value of the dollar?  Wine?  Cheese? Italian shoes?  I donít think so.  Pride?  Interest rates that may be forced to rise?


A cheap dollar, we are told, if ever anyone brings up the subject, is a way to stimulate the economy.  It makes American goods cheaper when sold in places like Europe and Australia.  So, can we expect major gains in exports in the coming year?  Again, I donít think so.  Will Boeing beat out Airbus on a major contract?  I donít think so.  Will Telstra go Motorola over Nokia?  I donít think so.  Some American tourists may stay away from the Continent; some more Europeans may visit Niagara Falls.  And up there at the Falls, maybe, a few more Canadians will stick their noses across the border.  Prices do matter to them.  They can compare head to head.


But a weak currency is first and foremost a symptom of something larger.  A loss in the greater wealth of the country as we squander it on ever-greater quantities of Asian made tchotckes, is like a long-term disease that strikes the immune system.  At first, you donít really feel it, you may even look better as you lose a little weight, not, of course, until, there is finally a crisis.  The problem is that we are living on the kindness of strangers.  As long as the Chinese and Japanese continue to buy treasury bonds denominated in an ever less valuable currency to prop up their own internal economies (what a deal, low interest rates on a bond denominated in a falling currency), we have nothing to worry about.  We can continue to run up more and more foreign debt, encourage our own plastic-bound consumer class to give it the old college try by going deeper and deeper into personal debt, and the government can merrily print more money than it takes in through taxes.  What a deal! 


As the man with the uncanny resemblance to Alfred E.Newman, might be heard to murmur: ďWhat Me Worry?Ē   




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Posted by dymaxion at 05:56 PM

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