Posted on 12/08/2006 4:08:32 AM PST by TigerLikesRooster
Dangers in a Dollar on the Edge
By Robert J. Samuelson
Friday, December 8, 2006; Page A39
Let's face it. Foreign exchange markets are not mass entertainment. They're not the NFL, MTV or MySpace. So you might have missed the latest excitement of the sliding dollar. Who cares if the euro is now worth $1.33 instead of the $1.28 it was worth on Nov. 20 -- a 4 percent loss for the dollar? Well, we all should. The dollar's mysterious movements pose one of the thorniest economic questions of our time: Can the world economy thrive without the massive stimulus of ever-increasing U.S. trade deficits?
It's no secret that Asia, Europe and Latin America have feasted on the U.S. trade gap. In 2006 the deficit will reach about $800 billion -- bringing the cumulative total since 1996 to $4.4 trillion. But as the U.S. economy slows, so will Americans' ravenous appetite for imports. Likewise, the dropping dollar (down 11 percent against the euro this year) will make U.S. exports more competitive on global markets. Big exporting countries may suffer. They need stronger domestic economic growth -- or their economies may languish
We refer awkwardly to "global imbalances": Some countries have big trade surpluses, others (mainly the United States) have big deficits. By and large the phenomenon has baffled economists, who didn't anticipate it. But the basic explanation is simple: The dollar's role as the main global currency.
It's the currency most used to set prices for raw materials: oil, wheat, copper. It's the currency most used to conduct trade. Japan invoices 52 percent of its exports in dollars, South Korea 85 percent and Australia 68 percent. Even France and Germany, which trade mainly in euros, use the dollar for about a third of their exports.
(Excerpt) Read more at washingtonpost.com ...
We managed to hold them off for some time, but they are not far away.
The one who should be most worried is not U.S. but China.
Actually a recession in 2007 almost guarantees a Democrat in the White House. And Hillary is still the main contender. So other countries aren't the only ones who should be worried.
"The one who should be most worried is not U.S. but China."
And the Middle East will go down the tubes if our oil dollars don't prop those countries up. With a flat economy or a recession, we won't need nearly as much oil and will be more self-sufficient in our energy needs.
Right. On economic issues, Repubs and Dems could come out even in coming election. If Dem Congress botch something major on economic matters, Repubs could be even on the advantage.
Good analysis and explanation by the "good" Samuelson (a great writer and economist). I'd say the outlook for recession in 2007 is very uncertain -- the recent strength in the stock market sure doesn't look like it's anticipating a recession. I do wonder if the weak dollar (especially the 4% fall since late November) reflects concerns about the Dems coming into power -- but that's probably being too logical.
Certainly not in the long run as they choke off innovation with confiscatory taxes. But in the short run a bunch of new spending will keep the economy putting, if not humming, through 08. The Fed will do its part too and continue to tear down the dollar to keep real estate moving. The only economic certainty (or near certainty) at the moment is that the dollar is toast.
"On economic issues, Repubs and Dems could come out even in coming election. "
I disagree. History shows that the Dems have had the upper hand in framing issues like this for major elections.
The simple fact is that if the dollar goes into the crapper then we will be unable to buy ALL THOSE THINGS WE USED TO MANUFACTURE.
Then, as the middle class goes into foreclosure, there'll be lots of jobs making 8 bux an hour for illegal immigrants making socks.
I wonder if Repubs have a plan if this recession turns out to be long. Or would they sitting on the sideline haplessly like in 30's?
I tend to worry more about how it affects the people than the political aspirations of the Demlicans, but you go ahead.
That's why the US govt loves an increase in oil prices.
Any excuse will do when it comes to the prospect of printing more money.
BUMP
trouble is, that if china and taiwan sell their dollar reserves the dollar wouldn't be of much worth.
So certainly the oilprice would fall - in relation to gold.
Suppose the situation reverses from "the world feasting on the US trade deficit" to a cheap dollar where US exports become cheaper and thus "the world feasting on cheap US exports".
For every buyer there is a seller. If the buyer is a willing buyer and the seller is a willing seller, what is the problem?
The only problem arises when the academic geniuses want to impose buyer and seller duties on those who are unwilling. Then distortions occur which invariably have worse consequences than the minor consequences of a constantly fluctuating invisible hand.
The problem is whether economic agents are able or willing to adapt themselves in time.
There are frequently lags or institutional rigidity. Then instead of smooth and orderly transition to new equilibrium, we have sharp destructive release of overdue pressure and it will take a long time for system to complete the necessary correction and settle into a new equilibrium.
Even in the best case, it could be sometimes pretty disruptive.
It is pretty common dynamic. More so than economists are willing to admit. That could be where we could be heading into.
EVERY elected republican should be out RIGHT NOW, and EVERY DAY, using articles like the one in today's New York Times talking about how good wage growth was the last year, and saying that the republicans left the democrats with a STRONG and GROWING economy, and we all hope the democrats don't screw it up.
Then, if in two years it is screwed up, people might remember who it was that did it.
It's not just that but I am talking a global drop in demand for oil which would throw the whole ME into a shambles. Yes, it weakens Iran but many of these other countries who live on petro dollars will suffer serious domestic unrest which means radicals take over those governments.
I have my wheelbarrow ready.
To be pulled by your lawnmower.:-)
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