And Nero fiddles...

[Bullypulpit]

<center><h2><font color=red>And Nero fiddles...</font></h2></center>

Surprise! The dollar is continuing its slide, accelerated somewhat by last weeks disappointing employment numbers. Economists were expecting in the neighborhood of 200,000 jobs, only about 112,000 were created.

As a result, Japan is now threatening a huge dollar sell-off to protect its fragile economic recovery. According to <a href=http://www.guardian.co.uk/usa/story/0,12271,1366585,00.html>Kaoru Yosano</a>, chairman of Japan's Liberal Democratic Party's policy committee, Japan is going to ask for a strong dollar policy from Dubbyuh's administration that amounts to something more than vague talk. Japan is also going to ask other G7 nations to demand that the Administration deal with the massive deficits that are the driving force behind the dollars slide.

But when we look at the policy stance of Dubbyuh's administration, social security privatization and tax-cuts, will deliver a $2 trillion plus hit to the US budget in the years to come. This could lead the US to a situation similar to Argentina, which followed similar policies and wound up defaulting on $100 billion in foreign debt in 2001. Given the size of the US economy, its outstanding debt overseas and its foreign trade deficit, the effects of such a collapse in the US are magnified far beyond the scale of what happened in Argentina.

The situation is reaching a point where <a href=http://business.bostonherald.com/businessNews/view.bg?articleid=55356>Stephen Roach</a>, of Morgan-Stanley, gives the US only a 10% chance of avoiding "economic Armageddon". This bearish outlook is being echoed by many others in the economic community.

The fact that Dubbyuh and his merry band don't find anything particularly worrisome here should give us all pause to wonder just how long our very own American Nero is going to continue to fiddle. With the US soaking up nearly $2.6 billion a day over overseas just to keep the doors open in Washington, one cannot help but wonder when the excrement is going to intersect the fan-blade. When it does, don't blame me...I didn't vote for his dumb ass.

Our only consolation is that the mid-term elections in '06 will allow us to put those members of congress, who have permitted the administration to spend tax-dollars like a drunken sailor on liberty, out to pasture. Hopefully, it won't be too late at that point, but it's not looking good.

(op-ed content with links)

 

[Merlin1047]

Of COURSE the Japanese and the Europeans want a strong dollar. That's what keeps their export business profitable. They're worried that the declining dollar will make US exports too competitive and that their exports to this country will become too expensive. They're worried that we'll start doing to them what they've been doing to us for decades.

The comparison to Argentina is total baloney. It's not the same situation. Argentina was paying off loans. Our "debt" is based largely on a trade imbalance. A weaker dollar will actually serve to correct that imbalance. The only real effect a weaker dollar may have will be to cause an increase in interest rates.

 

[Said1]

Stephen Roach's analysis reminds me of what happened in Alberta during the early 80's.

 

[Bullypulpit]

Of COURSE the Japanese and the Europeans want a strong dollar. That's what keeps their export business profitable. They're worried that the declining dollar will make US exports too competitive and that their exports to this country will become too expensive. They're worried that we'll start doing to them what they've been doing to us for decades.

The comparison to Argentina is total baloney. It's not the same situation. Argentina was paying off loans. Our "debt" is based largely on a trade imbalance. A weaker dollar will actually serve to correct that imbalance. The only real effect a weaker dollar may have will be to cause an increase in interest rates.

Why don't you give Stephen Roach's analysis a good read. Then make your lame criticisms.

 

[dilloduck]

Why don't you give Stephen Roach's analysis a good read. Then make your lame criticisms.

So what economic policy should we pursue, Bully ?

 

[Merlin1047]

Why don't you give Stephen Roach's analysis a good read. Then make your lame criticisms.

Tell ya what buttbreath, I'll read that if you study Dale Carnegie's "How to win friends and influence people".

Chances are you'll learn more than I will.

Oh, and by the way - your mother voted for Bush - twice.

 

[Mariner]

As you said, when the dollar slides far enough, we will have to raise interest rates in order to continue to attract the $2 billion per DAY that we currently require in order to finance our consumer spending and our federal deficit.

And when interest rates rise, the economy will slow, and we'll have massive debt, high interest, and a recession.

10 years ago the world owed us $1 trillion-- we were creditors. Now we owe the world $3.75 trillion--we're massive debtors. China and other countries will continue to finance our spending only until their own citizens can purchase their own excess production. Then they'll leave us in the dust. China will surpass our economy in 2040. Right now, China is building like mad: 40% of the world's concrete is being poured there (vs. 7% here).

As long as we're debtors, our supposed independence, autonomy, and superpower status are bogus. We can't speak up to Saudi Arabia, the source of 9/11, because they own us. We can't speak up to China because they own us too. Walmart, the anti-union zealots, just decided to allow Chinese Walmart workers to unionize--why? Because their business is going to be key. If it weren't so sick it would be funny to think of Chinese Walmart workers getting benefits that American ones can't match.

What should we be doing? Reducing the deficit and increasing our savings rate. How should we do that? Increasing taxes on the wealth (i.e. unearned income), closing tax loopholes for multinational corporations, ending corporate welfare, and being more careful which foreign countries we decide to invest in rebuilding.

Mariner.

 

[Merlin1047]

What should we be doing? Reducing the deficit and increasing our savings rate. How should we do that? Increasing taxes on the wealth (i.e. unearned income), closing tax loopholes for multinational corporations, ending corporate welfare, and being more careful which foreign countries we decide to invest in rebuilding.

Mariner.

Somehow you leftists always see the same solution for everything - more government and more confiscation of other people's money.

 

[Huckleburry]

You are forgetting that a sliding dollar is eradictaing debt held by other countries. Japan is the largest holder of american currency abroad, the continued slide of the dollar threatens to wipe out a huge chunk of those assests almost overnight. It is not a question of balance of trade but rather the balance sheet of central banks. Balance sheets they are willing to protect at the expense of the dollar.

 

[nakedemperor]

Tell ya what buttbreath

Didn't I get banned for petty name-calling last week?

 

[nakedemperor]

Somehow you leftists always see the same solution for everything - more government and more confiscation of other people's money.

Talk to GW about government expansion.

 

[Mariner]

it's Republicans who are responsible the for irresponsible fiscal policy that is creating this problem.

Here are excerpts from a piece in today's Times by the dean of Yale's School of Management:

Don't Let the Dollar Take the Fall
By JEFFREY E. GARTEN

Published: December 7, 2004

As the dollar continues to sink against the euro, the yen and other currencies, the conventional wisdom is that there is little choice but to allow it to continue to fall...

Here is what's wrong with this analysis.

A falling dollar is unlikely to curtail imports as much as hoped. It is more likely instead to act as a consumption tax. About one-quarter of the United States import bill arises from oil purchases, which are priced in dollars. A rapidly depreciating dollar thus means lower earnings for OPEC producers. In response, the cartel might well raise prices. Goods from Asia, especially China, account for at least another 25 percent of our import bill. Because these computers, machine tools, TV's and toys are essential to our work and lifestyle, chances are that we will still buy them, even at higher prices.

Nor will a cheaper dollar encourage domestic production that can replace imports, as some argue. Auto parts, for instance, are increasingly produced in Mexico and other developing nations...

The problem with the administration's devaluation policy is that it doesn't treat the root causes of America's economic imbalances. Our need to borrow so much from abroad is caused by our enormous consumption and our anemic savings. Today, Americans save just 0.2 percent of their disposable income, practically the lowest level in 45 years. Since we have so little savings to finance capital investment, we borrow from savings pools abroad. Our government, too, needs foreign creditors to invest in Treasury securities, to finance its escalating budget deficits.

Another trade issue not addressed by dollar devaluation: the need to sharpen our global competitiveness. In an advanced economy like ours, price should be less of a selling point than the quality and sophistication of a product. This isn't going to happen unless we improve the fundamentals underlying competitiveness - our education system and labor-force skills. A devalued dollar also does not lower health-care costs - costs so high that they encourage American employers to move operations to countries where governments often pick up the insurance tab.

Traders churning $2 trillion daily in currency markets know that if the United States relies on a cheap dollar alone to correct its trade imbalance it will push the currency down fast and for a long time - because the benefits will never quite match the predicted expectations.

This is a one-way bet for speculators. Already, rumors are rampant that several central banks with significant dollar holdings may diversify into other currencies. Hedge funds and other speculators may be moving in. If momentum to sell dollars gathers steam, it could lead to a dollar plunge, a global financial crisis and deep worldwide recession.

The dollar may well be overvalued now. But rather than just talking the currency down, Washington should try to pursue a formal agreement with Europe, Japan and China that addresses not only currency realignments but also the domestic policy changes needed to back them up.

A model for this is the so-called Plaza Accord negotiated by the Reagan administration with Germany and Japan in 1985. Then, as now, the United States was running large trade deficits and wanted to devalue the dollar. But rather than talking down the currency or letting it fall on its own, President Reagan's team got key trading partners to share the burden of adjusting policies to correct the imbalance. It worked. America's trade gap slowly narrowed, and foreign lenders did not demand significantly higher interest rates on Treasuries...

For example, rather than just assert that economic growth will reduce our budget deficits, the Bush administration might postpone or trim permanent tax cuts. It could also agree to partly privatize Social Security only after creating a plan to finance the $1 trillion to $2 trillion in transition costs without deepening the deficit. It could announce measures to improve our export performance - starting, perhaps, with more support for certain research and development programs and a plan to lower health-care premiums for employers by offering reinsurance for catastrophic-illness costs...

A great power does not debase its currency - a currency around which most global commerce revolves. It does not take its hand off the tiller, as if the market bears all responsibility for global financial stability. To fix the problems that underlie huge trade imbalances, it uses statesmanship - at home and abroad.

Jeffrey E. Garten, dean of the Yale School of Management, held economic and foreign policy posts in the Nixon, Ford, Carter and Clinton administrations.

--

Mariner

 

[Merlin1047]

Didn't I get banned for petty name-calling last week?

Recommend you direct your comments to someone interested in carrying on a discussion with you.

 

[nakedemperor]

Recommend you direct your comments to someone interested in carrying on a discussion with you.

Duely noted. Mister grumpy-head.