A dollar bet
October 14th, 2009
During the past several months, the dollar has experienced renewed decline against other major currencies and there’s plenty of talk about it.
Some economists, such as Nobel prize winner Paul Krugman, have argued that the weak dollar is a net benefit that is necessary to put the economy on track by making American exports cheaper abroad. Others have argued that a weak dollar leads to a loss of capital resulting in a net job loss. In addition, the falling dollar raised fears of inflation and the loss of the dollar’s world prominence.
Are you worried about inflation? Have you personally taken any steps protect yourself from it? Do you think that the American dollar will remain the world’s most important currency?
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Paul Krugman Admits on the Joey Panto Show the Real Reason he Likes Inflation – It will bring about an Egalitarian Utopia
http://02e56fa.netsolhost.com/blog1/index.php/2009/10/14/paul-krugman-admits-the-real-reason-he-l
My money guy is moving assets off shore. If there is a crash everyone loses. I think the market will nickel and dime us over the next 5 or so years. Someone has to pay for the trillions that probably ended up in Swiss banks.
I see Klugman’s point and it will be interesting to see if the further devaluation of the dollar effects the trade balance, thereby stimulating new “real” jobs. In the meantime, however, inflation has eaten my lunch. I NEVER buy ANYthing at 100% retail price. I am a deep value person, from stocks to shoelaces. I buy the loss leaders without buying the other stuff. As for the importance of the dollar as a global currency, that is probably a question which is an indicator for our internal value set. We could only hope that the national debt has improved before that happens.
So I take it you think the Joey Panto show is real…..
Interestingly, it appears that those who follow the Treasury think China has again pegged their currency to the dollar. So no matter how low we go, theirs will be lower. This makes monetary policy kind of like a dog chasing his own tail. I suppose we do sell to other countries and our goods will be cheaper there, but we can never hope to rebalance the trade deficit with China under those circumstances. Wonder what Plan B was?
China will not crash the dollar while they are holding trillions of them. I suspect the dollar will be nickel and dimed to death over the next 5 or so years. All China has to do is to buy fewer and fewer of new issues of Treasury paper.
Second, thanks to the new international world, we have two parallel economies in the US, one for the rich and one for the workers. By sending jobs off shore, companies make more money and the stock market rises. If wages in the US drop ten bucks an hour and wages in china rise ten bucks, they will be in spitting distance. What happens then?
Yes, I realize how much of the National Debt China holds.
Four years ago, I was boring anyone who would listen, that our international currency policies were our biggest national security issue, and at the time was viewed as the street corner sage carrying the sign “The End Is Near”. I believe the financial relationship this unbalanced debt has caused will be one of the most important limitations to future economic health in America.
In my household, neither of us has had a raise in 6 years. Foreign competition is the usual reason given by both the private and public sector executives. So for us, inflation is already here. I wonder how many policy makers “get” that. That is not future inflation, friends, that is current inflation. That is like being asked about whether we worry about a future war, while ducking the live ordnance.