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No, Mr. President-Elect, the Dollar Is Not 'Too Strong'
Real Clear Markets ^ | January 18, 2017 | John Tamny

Posted on 01/18/2017 5:19:10 AM PST by expat_panama

Imagine a short person spending his days cursing the “strong” inch for it “robbing” him of impressive height? Better yet, please contemplate a compulsive eater who blames his substantial weight on a pound that is too “weak.”

Wise minds would mock the unhinged individuals who would rage at the foot ruler, inch, pound, and scale for revealing reality. Such people would logically be the object of our ridicule and scorn, or maybe just pity. Scales, rulers, inches and pounds are measures. Nothing else. They don’t weaken or strengthen us. They just are.

What’s important about them is that if the inch were “weakened” as it were to half its original length, and the pound were “strengthened” to double its present weight, neither would alter reality. The person of diminutive stature would still be small even if a newly defined inch rendered this person 10 feet tall. Just the same, a “strong” pound won’t suddenly loosen clothes that used to be tight.

So while we would properly laugh at people inclined to curse reality, economists and politicians who blame economic performance on a “strong” dollar are viewed as wise. Who cares that the economically prosperous U.S. had a strong, stable dollar for almost all of its first 200 years of existence; to believe the President-elect and most economists, devaluation is the sale-inducing path to prosperity according to modern thinkers operating free of reason. Our new president says the dollar is “too strong,” that “Our companies can’t compete” because “our currency is too strong.” See above and laugh. Or cry.

Back to reality, the obvious problem with the much-beloved devaluation scenario is that when we individuals trade, it’s products for products. That’s the sole reason we produce in the first place; to get what we don’t have. To import. Money just facilitates our getting. Nothing else. Yet to our new president and countless economists, prosperity is all about “exporting” things. No, prosperity is all about importing things.

Think about it. Do any of you readers get up and go to work each day just for dollars? Is your sole purpose to “export” your labor? Not by a mile. You export so that you can import. That’s the only reason you work. Some of you might save the proceeds of your work for a later date, or to pass on to husbands, wives, children and grandchildren, but even then it remains the truth that you’re saving so that someone else can import, or get. It’s all so basic, right?

Not to our incoming president, and all manner of economists on the left and right. They cheer on dollar devaluation because it supposedly renders the goods and services we produce cheaper; thus easier to export. Ok, but we earn dollars. If the dollar is devalued as Trump et al desire, and we get back cheaper dollars in return for our toil, then the sole purpose of our work is taken from us. It’s taxed away by devaluation. We get cheapened dollars that buy less in return for our work. Devaluation robs us.

Yet Trump thinks the dollar is “too strong.” Ok, but if it’s cheapened we have a reduced incentive to produce in the first place. Why work for dollars that don’t buy very much? Also, if we’re not buying from others, how can they buy from us? These minor little details are never asked by a political class so intent on devaluing the money we earn.

Of course, that’s only part of the story. There are other realities to consider.

It’s said that companies with an eye on exporting (meaning, they have an eye on importing) benefit from a weak currency. But a weak dollar can’t alter reality any more than can a shrunken inch or expanded pound change what’s true. “Money is a veil,” to quote the late, great Robert Bartley, longtime editorial page editor of the Wall Street Journal.

This is important because when companies produce goods for sale, they “import” inputs from across the street and around the world. This matters simply because a devalued dollar logically drives up the price of everything necessary to produce marketable goods. Indeed, does any mildly sentient being believe that Treasury can shrink the purchasing power of the dollar without those who produce for dollars asking for more of them in return for what they’re selling? Only to economists and politicians untouched by reality does devaluation cheapen exports! What a laugh.

What about shipping? Trump and his crowd are made giddy by the word “export,” export of goods “manufactured” in the states really makes them giddy despite the reality that rich countries generally design goods while enlisting poorer countries in the low-value work of manufacture. But shipping costs a lot of money. And it becomes quite a bit more expensive in dollars when the dollar is being weakened. Figure that in the 70s and 00s the dollar was severely devalued, and the prices of oil, airplane fuel and all other transportation commodities soared.

And then there’s labor. Trump and his protectionist friends love labor-intensive industry, they in particular get frisky when the labor is based in the United States, but last this writer checked these workers earn dollars in return for their toil. And if Trump is to be believed, these dollar-earning everymen were his base of support in the most recent election. Do these average people realize that Trump wants to devalue the dollars they work for each day? Where’s the media coverage of this? Trump, the alleged populist, is out to devalue the dollars earned by common people who frequently lack the hedging knowledge to mitigate government’s theft of their earnings. Some would call it a scandal.

While the president-elect talks a good game about the importance of economic growth, talking down the dollar measure amounts to fakery. To believe it works is as silly as a real estate developer believing he can command more for his properties by devaluing the square foot. This is not the stuff of a serious country.

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015).


TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: economy; investing; media
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To: 1rudeboy

I answered your question directly and succinctly. I suppose you believe that you asked some other, hidden question that I dodged for nefarious reasons?


41 posted on 01/18/2017 6:49:55 AM PST by RegulatorCountry
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To: RegulatorCountry

There was a question in my comment #31. Hint: look for the QUESTION mark.


42 posted on 01/18/2017 6:53:14 AM PST by 1rudeboy
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Comment #43 Removed by Moderator

To: 1rudeboy

You’ve asked me no question other than the one that I answered. You appear to be confusing me with some other FReeper. Cosmic questions shaking your fist at the sky shouting “why WHY???!!!!” don’t really accomplish much, you’ll discover.


44 posted on 01/18/2017 6:57:43 AM PST by RegulatorCountry
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To: RegulatorCountry

Let’s back up a little. Do you see a question mark in comment #31?


45 posted on 01/18/2017 7:01:19 AM PST by 1rudeboy
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To: impimp

When international-trade signals to international-currency markets a lowering in value of a currency, that is one thing.

To intentionally want to, and take action to lower the value of your own currency is most usually in error. It is an attempt to game the markets into a value the markets have not determined. If it works, you might get more exports, but you are unlikely to get fewer imports and most likely to get more inflation, as even some lower level of imports will come in at higher-unit costs, in dollars, than before, and those costs will pass on to everyone, even to exporters via domestic inflation. Bad idea.


46 posted on 01/18/2017 7:03:20 AM PST by Wuli
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To: 1rudeboy

I see you demanding an answer from me for a question you never asked me, then a lot of self-pitying prattle following thereafter.

Would you care to break down just how your question regarding how your own advocacy has helped reduce your compensation leads into taxation?

What sort of convoluted thought process is this? I’ve not discussed taxation, I’ve not mentioned it at all. You have me confused with some other FReeper, as I’ve mentioned before.


47 posted on 01/18/2017 7:06:30 AM PST by RegulatorCountry
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To: expat_panama

“If” our currency is, relative to other currencies, over-valued than that disturbs the economic equilibrium and creates pressures towards returning to the equilibrium. Either under-valued currencies increase or over-valued currencies decrease but homeostasis will rule the day...


48 posted on 01/18/2017 7:11:20 AM PST by MichaelRDanger
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To: RegulatorCountry

Ok, so the first guy couldn’t answer my first question, and you couldn’t answer my second. At least he bailed on it without playing stupid. In my comment #31, I asked you a question regarding your notion of “labor arbitrage,” and how the federal government should address it.


49 posted on 01/18/2017 7:13:19 AM PST by 1rudeboy
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To: RegulatorCountry
expat_panama: exchange rates do not affect trade

RegulatorCountry  You cannot possibly be attempting to claim that exchange rates have no effect upon trade.

This is the problem w/ this conversation, that I say something and other folks will not only refuse to think they won't even believe I said what I said.  

So on the one hand we got folks on the FR that just love to believe what they want and there's the rest of us who're busy feeding our families and we prefer to believe what is.  It's always like that, we listen to people and we tell them to stop talking and---

Show me US exchange rates along with the trade balance, and then lets see how one always controls the other.

50 posted on 01/18/2017 7:16:15 AM PST by expat_panama
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To: central_va

I like protectionism only when it comes to military technology.


51 posted on 01/18/2017 7:18:34 AM PST by impimp
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To: expat_panama

Let’s just continue on with the Chinese dollar peg since it has no effect, according to you, lol? Please.


52 posted on 01/18/2017 7:22:20 AM PST by RegulatorCountry
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To: entropy12
Those jobs are never coming back. Even if we sealed the border and prohibited the import of any products from outside the country, we're not likely to get back more than 5% of the jobs we allegedly "lost" to these foreign countries.

I would rather get my middle class manufacturing full time job back, than working in 2 part time jobs with no health insurance and no retirement benefits.

I would love to have my grandfather's lifetime employment at a major U.S. manufacturer, but I would never want to have his standard of living.

53 posted on 01/18/2017 7:22:47 AM PST by Alberta's Child ("Yo, bartender -- Jobu needs a refill!")
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To: impimp
So if you are a Big Cap manufacturing thinking about off shoring to Mexico and the USA imposes a 30% import tariff are yo still going to move?

But to you the company not moving is a bad thing. All of those thousands of US workers keeping their jobs means nothing. You went on record as not caring about "displaced" working class Americans. You are a threat to the USA. You are an embarrassment and an unwitting Marxist tool.

54 posted on 01/18/2017 7:23:57 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va
Uh -- what?

How do you transport and sell the things you manufacture? Do auto manufacturers sell their cars at roadside stands right outside their plants?

55 posted on 01/18/2017 7:25:27 AM PST by Alberta's Child ("Yo, bartender -- Jobu needs a refill!")
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To: max.ripp
Automation will out perform any human, produce parts with greater efficiency and better quality every minute of every day.

It's amazing how many people on this site seem to think we can employ millions of Americans simply by outlawing this sort of thing:


56 posted on 01/18/2017 7:28:34 AM PST by Alberta's Child ("Yo, bartender -- Jobu needs a refill!")
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To: central_va

Speaking of “tool,” how will your vaunted 10% tariff affect the jobs at those domestic U.S. manufacturers that rely upon imported materials?


57 posted on 01/18/2017 7:30:00 AM PST by 1rudeboy
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To: central_va

I try and think long-term. In the long-term trading blocs will develop such that they consist of the countries with the lowest trade barriers with each other. These blocs will thrive while those with more trade barriers will be relatively less prosperous.

I guarantee that a more protectionist US will lead to most of the world’s nations looking to make trade deals with the EU (which will be Muslim in a few generations). Then EU goes up in power and America goes down in power. Note that China will look to the EU more as well.


58 posted on 01/18/2017 7:32:38 AM PST by impimp
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To: Alberta's Child
transportation marketing shipping do not add much value to the product for the customer. They create little wealth just transfer. If a country could becomes prosperous retail, importing and marketing products all made overseas then every third world country would be wealthy.

Actually my list is wrong actually. My list was supposed to be things that CREATE wealth. Marketing, transportation, warehousing and retailing do not create wealth at all, only transfer it. These are "middlemen" processes that are actually adding to cost of the product. A necessary but expensive detriment.

59 posted on 01/18/2017 7:35:36 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: Alberta's Child

Don’t be silly. Transport drivers and retailers don’t create wealth. They all should get jobs at plants making stuff that can’t be transported or sold.


60 posted on 01/18/2017 7:36:28 AM PST by 1rudeboy
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