WP: Long Arm of the Dollar: Weakness Has Far-Reaching Ramifications

[DeepModem Mom]

The Long Arm of the Dollar
U.S. Currency's Weakness Has Far-Reaching Ramifications

By Paul Blustein
Washington Post Staff Writer
Tuesday, January 4, 2005; Page E01


....For the most part, the cheaper dollar helps the U.S. economy by making American goods less expensive relative to those made abroad. But Americans like (Mary Ann Bell of Middleburg, executive director of a charity called Romanian Christian Enterprises) cannot help but wonder how it can be good if their currency buys so much less overseas than before -- and many economists agree that the long-range implications may be wrenching.

The dollar's downward move, after all, stems from a massive imbalance in the U.S. economy, as reflected in the country's burgeoning trade deficit. Since Americans import more than they export -- the gap is running at about $600 billion a year -- foreigners effectively lend the difference, taking the dollars they receive for their goods and investing them in U.S. assets such as Treasury bonds. The net amount Americans owe foreign creditors has soared over the past eight years, to more than $3 trillion from $360 billion. The amount is equal to nearly 30 percent of the country's annual economic output. The more this sort of indebtedness rises, the more reluctant foreigners may become to continue buying dollars.

No one can predict how this process will unfold. It could come in the form of a sudden sell-off of U.S. stocks and bonds by foreigners, which could throw the world economy into recession. Or it could be much more gradual, with foreigners demanding higher yields on the money they invest in the United States, which could drive interest rates upward.

Even analysts who discount the odds of a crisis think the dollar is probably headed significantly lower in coming years. That is because its drop has shown no sign of shrinking the trade deficit to what economists consider a manageable level. As Federal Reserve Board Chairman Alan Greenspan put it in a speech in late November: "Given the size of the deficit, a diminished appetite for adding to dollar balances must occur at some point."...


http://www.washingtonpost.com/ac2/wp-dyn/A46055-2005Jan3?language=printer

[Florida_Geek]

1. What is sold in Wally Mart that is made in the USA

everything else will go up in price.

What do we sell overseas other than farm stuff and military stuff????

[DBoon]

3. Short answer: Nothing

The US will become a plantation economy - literally a banana republic. We have already been stripped of our mass production manufacturing - now the high-tech is going to go.

Just like the old Confederacy. The South did win that war. The plantation growers now run the government, and the manufacturers and skilled middle class have lost.

[Old and In the Way]

2. The dollar will need to fall significantly and stabilize over the longterm

before we see widget factories built here. If that happens, we've already lost our standard of living. There is really no silver lining in a falling dollar for most Americans. Do we really want to reinvent factory jobs that pay Chinese wages? You know that the wealthiest 2% have taken their taxcuts and investments into economies where capital preservation/appreciation is assured.

America had a choice in November of 2004...too many chose the deadend, "war for oil profits" vision of the Republican Party. We needed to reinvent our economy and rebuild our energy infrastructure to reflect a post peak oil reality. And there could have been a meaningful future in this vision....

[Kolesar]

4. What economies have they put their money into?

The Chinese Yuan is tied to the dollar and is technically devalued along with the dollar. The Euro and the rest of the world's currencies have risen (& become less competitive).

I know some people are buying precious metals, too.

[Old and In the Way]

8. Capital goes where capital grows.

Had an economics teacher tell me that a long, long time ago. The growth market is just about everywhere except here these days. And who wants to invest in an economy whose only export seems to be wars of conquest?

Granted the Yuan is tied to the dollar....but for how long? Probably until they have their own domestic market primed and we've fully divested ourselves of a manufacturing infrastructure. If they ever float it, it will be like the late 70's when OPEC's formation shocked our economy. I doubt that it would happen overnight, though, probably a controlled release.

[Kolesar]

9. Canada has been doing well, I understand...eom

[durablend]

5. That's why * is inviting as many illegals in as possible...

When the repukes abolish the minimum wage, they'll be more than willing to work for a couple of quarters a week (and all the Merikins who can't afford to work for that will be called "lazy, whining losers"). Anything paying more than a couple of $$ a week (aside from government, of course) will be outsourced to the lowest bidders in India and China.

[indepat]

6. We the people have ratified the policies of those who have created much

of this imbalance through large tax cuts for the needy and pre-emptive war. As such the babyboomers will just have to get by with much fewer than promised social security dollars of greatly-eroded purchasing power, but all this is such a small price to pay to be safe. The good news, the bonus if you will, will be the safisfaction inuring to each and every person who aided and abetted in the full implementation of the PNAC vision. Cheers.

[GOPBasher]

7. That's what happens when you explode the national debt.

Oh well. Maybe when we're a third world country, people will learn.