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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: expat_panama

You people have gotten lazy and overcompensated. It’s time for you to make an honest living rather than relying upon currency manipulation to line your pockets. You’re really incredible, in the original sense of the word. If, as you claim, currency exchange rates have “no effect” then you should be quite content with a weaker dollar.


81 posted on 01/18/2017 8:09:08 AM PST by RegulatorCountry
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To: Alberta's Child
I didn't say the services of shipping, marketing and retailing are not useful. THEY DO NOT CREATE WEALTH.

To create wealth means you created something tangible, something that can be touched. Services just transfer wealth from one person to another it is not a creative process. The most important way to create real wealth are to "make it, mine it, grow it or construct it". Any other economic activity that does not involve those things are secondary services.

82 posted on 01/18/2017 8:11:44 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va

And yet that person sits in a new car, possibly even delivered to their own driveway. I wouldn’t expect them to spend much time wondering how it got there, or where all the parts and materials to build it came from, either. But I do know that the less they think about it, the more likely they are a protectionist.


83 posted on 01/18/2017 8:11:50 AM PST by 1rudeboy
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To: central_va

“Tariffs also generate lots of revenue and if we can use it to balance the budget then the dollar strengthen even more. The trick is austerity.”

Tariffs would gen maybe $100 billion in revenue at most. The real gain is domestic production increases, something these anti-Americans think is a terrible thing since their favorite foreign nation would lose that production.


84 posted on 01/18/2017 8:11:51 AM PST by CodeToad (If it weren't for physics and law enforcement, I'd be unstoppable!)
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To: Alberta's Child

Trump is not a Luddite. So this is a straw man argument. I am a huge fan of automation just as long as the factory IS IN THE USA.


85 posted on 01/18/2017 8:13:33 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va
What does "offshoring" mean?

I'll go back to my previous example of tires and auto manufacturing.

Bridgestone is the largest tire manufacturer in the world. They have 15 plants in the U.S., but only about four of them produce new tires for cars (the rest produce tires for agricultural equipment and off-road vehicles, or produce retreaded tires for trucks). If Bridgestone closes a plant in Tennessee and opens a new one in Vietnam, did they "offshore" all of that manufacturing capacity?

86 posted on 01/18/2017 8:14:06 AM PST by Alberta's Child ("Yo, bartender -- Jobu needs a refill!")
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To: CodeToad

I agree but 100B to the black is better than 100B to the red.


87 posted on 01/18/2017 8:14:32 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va
To create wealth means you created something tangible, something that can be touched.

If I'm in the auto manufacturing business, how do I touch the rubber that is used for my tires when it is halfway around the world?

Services just transfer wealth from one person to another it is not a creative process.

If that's the way you understand the wealth creation process, I'm willing to bet that you don't create any wealth at all -- for anyone.

88 posted on 01/18/2017 8:18:47 AM PST by Alberta's Child ("Yo, bartender -- Jobu needs a refill!")
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To: central_va

Sure, I’ll take the 100B. Definitely. That’s 1T over 10 years, in a static model. Of course, what I want is tariffs to go to $0. Zero. None.

I want fair trade that doesn’t result in tariffs, where companies are not incentivized to import. Where our imports are of items we simply don’t make, like bananas, certain furniture, specific materials, seasonal items like fresh fruits from South America, etc.

I am all for trade, but not at the expense of requiring America be weak to do it just so some foreign nation becomes stronger like expat_panama has demanded.


89 posted on 01/18/2017 8:18:58 AM PST by CodeToad (If it weren't for physics and law enforcement, I'd be unstoppable!)
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To: central_va

I have a manufacturing job, am I “creating” wealth? Personally, I think I spend most of my time staring at a computer. But when I was actually making stuff as a machine operator, was I creating wealth, then? Was I ever?


90 posted on 01/18/2017 8:19:15 AM PST by 1rudeboy
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To: 1rudeboy

When I buy a car I look at the VIN to see where it is manufactured. I also think about the factory and the build quality.


91 posted on 01/18/2017 8:19:15 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: 1rudeboy

If you made something, grew something or mined something you created wealth.


92 posted on 01/18/2017 8:20:44 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va

If Donald Trump wasn’t the president and he was still involved in the day-to-day management of his company, where do you think he’d be more likely to build a new resort hotel — Detroit or Dubai?


93 posted on 01/18/2017 8:20:45 AM PST by Alberta's Child ("Yo, bartender -- Jobu needs a refill!")
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To: 1rudeboy

Just sit back, little boy, and let Trump show you how it’s done.


94 posted on 01/18/2017 8:20:49 AM PST by CodeToad (If it weren't for physics and law enforcement, I'd be unstoppable!)
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To: CodeToad

After 30 years of giving the rest of the world a chance to “play fair”, and they haven’t, do you really thing we can live in a world without tariffs?


95 posted on 01/18/2017 8:22:20 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va

Yup, you’re a protectionist. A free-trader looks at those, and then the form that states the vehicle’s domestic content. For my Ford (built in the USA), it was 60%. Did you look at yours?


96 posted on 01/18/2017 8:23:14 AM PST by 1rudeboy
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To: expat_panama
Strong dollar = good for Wall Street (ie Globalists)

Weak Dollar = good for Main Street
97 posted on 01/18/2017 8:24:47 AM PST by jobim
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To: Alberta's Child
Here is the point you are trying to make. That Trump would build a hotel in Dubai.

The point I am trying to make would be this, If you could prefab an entire hotel in China and ship on some humongous vessel to Detroit that would be a bad thing. The Americans could have created that wealth(A new hotel) but we pawned the wealth creation off on to the Chinese and the middlemen pocket the difference.

98 posted on 01/18/2017 8:27:27 AM PST by central_va (I won't be reconstructed and I do not give a damn.)
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To: central_va

So I created wealth at one time, got promoted, and create wealth no longer. Odd that I am better-off after the promotion. A real head-scratcher.


99 posted on 01/18/2017 8:29:12 AM PST by 1rudeboy
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To: central_va

“After 30 years of giving the rest of the world a chance to “play fair”, and they haven’t, do you really thing we can live in a world without tariffs?”

Maybe. Tariffs may cause some domestic issue that business scream to congress to correct. If they find they cannot import and domestic production is hampered by taxes and regulations, maybe, just maybe, they’ll use their clout to change those taxes and regs instead of using it to allow unfettered imports as they have.

We need to change our taxes and regs. Tariffs, alone, will not do the trick. We need tariffs right now to cause the changes needed and get Americans back to work.

A serious consequence of Americans not working has been the knowledge needed to work. Colleges teach very little these days, high schools are a joke, and we as a nation have lost that can-do spirit. We’ll get it back quickly, but the catalyst will be tariffs causing domestic production demand.

The last thing we need is a weak dollar and more imports as these anti-Americans on FR keep advocating.


100 posted on 01/18/2017 8:29:22 AM PST by CodeToad (If it weren't for physics and law enforcement, I'd be unstoppable!)
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