News What's it going to take to bring us back to a stronger dollar?

[member 5645]

Anyone? And spare the rhetoric of "Just elect Bush out of office"
What needs to be done?

 

[jimmy p]

Join forces with Britain (who want to keep the pound and have a strong economy) and make the dollarpound, the strongest form of currency in the world MUHAHAHAHAHAHAHAHAHAHAHAHAHA!

 

[Njorl]

The official policy right now is that the dollar has been too strong, and should be weakened. I don't know if this is a good or bad policy, but I doubt the dollar will increase in value without a policy change.

The circumstances for desiring a weaker currency are rare. They come about when there is no shortage of investment wealth, but there is a shortage of jobs. The weak dollar supposedly decreases imports, increases exports, and therefore domestic production and jobs increase. It doesn't work that simply, but nothing in economics ever does.

Japan in the '90s was a classic example of having too strong of a currency. They had experienced a boom in productivity, and were exporting to all their neighbors. They had enormous disposable wealth, and invested heavily in more production. When their markets began to dry up, they began lending money to them to keep demand high. Soon, the east Asian countries could not afford to borrow anymore, nor could they afford to buy Japanese goods for as much as it took to produce them. Japanes banks failed, and unemployment soared. They are still mired in this situation.

Njorl

 

[selfAdjoint]

1)Reverse all the tax cuts (won't be popular because the middle class did get some benefit).

2) Get us out of Iraq and Afghanistan and slash the military budget.

3) Try to get the deficit down (Bush's advisors know this is important, so he talked about it in the SOTU speech, but they don't have any fix for it within their thinking).

4) Raise the cap on FICA deductions (social security contributions).

 

[member 5645]

Originally posted by selfAdjoint
1)Reverse all the tax cuts (won't be popular because the middle class did get some benefit).

2) Get us out of Iraq and Afghanistan and slash the military budget.

3) Try to get the deficit down (Bush's advisors know this is important, so he talked about it in the SOTU speech, but they don't have any fix for it within their thinking).

4) Raise the cap on FICA deductions (social security contributions).

Can you expand on the principals governning your choices?

 

[iansmith]

I suggest you read some macroeconomics textbook they will explain how money value is raise or lower.

As far as I remember:

1- Interest rate have to increase which in term increase the demand for money by bringing foreign investment and increasing local investment. The problem with this is migth slow down the economy.

2- Increase money printing.

3- Anything that will increase you supply and demand of money.

 

[NateTG]

How extreme do you want to get? There are some 'simple' answers like, go back to gold-backed currency, but I'm not sure that there are adequate gold reserves, or that you want to get away from the notion of a fiat currency.

One method for strengthening the dollar is increasing the flow of captial into the country. An excellent example would be reducing the US trade deficit.

Another good way to strengthen the dollar is to have a more stable economy. The current feast or famine climate is rather unstable.

Get a credible goverment. I know you didn't want a generic 'remove Bush' but it's easy to point to policy descisions that are problematic. Refunding the surplus when the government has debt is an excellent example. Unilateral action in Iraq indicates that the government is unstable. Reconstruction policies in Iraq that alienate allies and smack of corruption.

 

[Njorl]

Obviously, this thread was enough to do it. The dollar jumped significantly this morning.



Njorl

 

[member 5645]

Originally posted by Njorl
Obviously, this thread was enough to do it. The dollar jumped significantly this morning.



Njorl

I knew I was doing the right thing!

 

[Nereid]

why?

Hey phatmonky, why do you want a stronger dollar? Do you want to retire in Australia on your accumlated USD wealth?

iansmith: "I suggest you read some macroeconomics textbook" Yep

NateTG: "There are some 'simple' answers like, go back to gold-backed currency" Nope (it's like a locked thread on PF, you can't go back)

SelfAdjoint: "Try to get the deficit down" Yep (the other 3 are examples of how to do that)

Njorl: well, you clearly know what you're talking about (how much economics did you study? at least to college level I'll wager). Listen to Njorl!

IMHO, the scariest part is that the Bush team doesn't seem willing to listen to economists. For a start, forex markets have a horrible tendency to overshoot (the equilibrium rate is, largely, governed by trade and barriers to capital movements). The good news for us here on PF (and others in the know) is that the Big Mac index has proven remarkably accurate as a predictor. However, I wouldn't recommend you give up your day job.

 

[GENIERE]

The premise of this thread is that a weak dollar is a bad thing. At this period in time it is more likely to be a good thing for the US economy and a bad thing for the countries that export to the US. If we paid $X for a barrel of oil 1 year ago or X$ for a German car, and pay the same price today, we are getting a 20% discount. Obviously those importers will eventually need to raise prices, but are reluctant to do so as it will decrease sales. It also promotes foreign investment in US corporations Stocks), as they appear under priced. The bubble will burst eventually, so expect much more fiscal discipline from the administration to cause a gradual increase in the dollars worth. By august, 2004, expect the dollar to gain back about 5%. As Russ Waters pointed out in an old thread, the value of any currency or metal is a perceived value almost as important as its intrinsic value. The dollar’s value is ultimately backed by the American worker, second to none.
If the dollar does not rise in about 8 months time, I too will be worried.
The value of the Euro is still not established. It will probably be several years before its worth is fully determined. If the zero growth, tight fiscal policies of the EU are maintained it will likely have a worth of more than the dollar in the long term at the expense of its citizens. If the EU nations choose to grow their economies by decreasing taxes and socialist policies, the two currencies will probably trade at +/-10%.

Lastly, all should know that the powerhouses of the EU, Germany and France, have very high unemployment rates of over 10%. Their economies are expected to have negative or less than 1% growth in 2004

 

[Nereid]

GENIERE wrote: *SNIP The dollar’s value is ultimately backed by the American worker, second to none.

Why? (the dollar-worker relationship; we can discuss the other bit somewhere else )

 

[ray b]

dollar value is related to USA interest rates
current USA interest rates are very low so holding dollors yealds a low rate of return

so higher interest rates will result in a higher dollar value