The Angry Republicans Have No Credibility On The Dollar

[girl gone mad]

The Angry Republicans Have No Credibility On The Dollar
Richard Bernstein
http://www.businessinsider.com/richard-bernstein-the-whining-republicans-have-no-credibility-on-the-dollar-2009-10">The Business Insider

Republicans have been vigorously criticizing the Obama administration regarding the weak US dollar. It appears as though Washington’s remarkable penchant for short memories remains intact.

It also seems odd that the Republicans, the party that has overseen nearly three decades of a depreciating US dollar, suddenly feels that a strong dollar is so important.

I have argued for many years regarding the benefits of a strong US dollar, and have been consistently critical of Messrs. Greenspan and Bernanke and a host of Treasury secretaries because of their attempts to solve the US’s economic problems via a weak currency. It is admittedly difficult for politicians to encourage significant structural changes in the economy because of the unemployment that accompanies such changes (some give kudos to Ronald Regan for doing so with respect to the US labor movement). I strongly doubt that any politician has ever been elected using a slogan “More unemployment for America.”

However, altering the US economy via the currency is more insidious. Voters rarely make the connection between a depreciating dollar and their depreciating standard of living. But they should.

A country’s standard of living depreciates as its currency depreciates. Although many like to say that the depreciating US dollar reflects the improving standard of living in the rest of the world and does not reflect any depreciation of US living standards, such claims seem false. The move within the US from one- to two-wage earner families has been a direct attempt by the household sector to maintain standards of living. The US obviously was not going to rescind child labor laws, so two-wage earner families began to leverage their assets when their standards of living continued to depreciate.

http://www.businessinsider.com/richard-bernstein-the-whining-republicans-have-no-credibility-on-the-dollar-2009-10">More...

[whoneedstickets]

1. Sadly, the article doesn't point out that the high dollar wasn't earned..

The artificially high value of the dollar resulted not from overall US economic strength but from the fact that the dollar was in perpetual demand as a result of its status as reserve currency and main energy trading currency. Ergo: we've been living above our means largely do to the circumstances of US predominance after WWII, this was not going to last forever.

The dollar should be allowed to fall to a position commensurate with our economic condition. This will result in a lower standard of living but higher job growth in the long run.

[zbdent]

2. I recall that, under Bush,

the Canadian dollar actually started being worth more than the U.S. dollar ... for a while ...

[Po_d Mainiac]

3. It's damn near at par now...3 and a half pennies difference n/t

[Statistical]

4. In the short term a weak dollar is not that bad....

AS LONG AS (and this is the kicker) people keep buying our debt.

Theoretically we could ride this to our advantage. 99.9% chance we won't because Congress criters are too wrapped up in stupid crap to look big picture.

Short term -
low dollar makes US exports "cheaper" in foreign ports and makes profits on those exports greater in $s. US companies ramp up exports to cash in on this easy money and have to hire to do so.

Weak dollar and low interest rates can fuel expansions and increased industrial output.

Medium term -
Weak dollar means returns in dollars are not as favorable so big foreign money doesn't want as much debt. So the supply of debt needs to fall in line with reduced demand. i.e in 2012 demand falls 15% but debt refinanced falls 15% so rates tend to stay flat. This requires RAISING TAXES and CUTTING SPENDING. Not one or other but both. Extra revenue going to pay down national debt to compensate for reduced demand.

Longer term -
Raise interest rates to traditional levels (7% fed funds, 9% prime). This strengthens the dollar as does reduced national debt.

Of course this would require big picture (10+ years) thinking by Congress and an acceptance by Americans that taxes will go up and they need to cut personal debts also so likely it will never happen.