interesting article on US economic recovery and the dollar's value

[lozina]

http://www.kitco.com/ind/Resopp/feb032004.html

You have to hand it to George Bush. The man started his term in office just as the U.S. economy came crashing down from the greatest bull market in world history. That economic slowdown was accompanied by government and private sector debt at record levels and a massive trade surplus that is continuing to draw money out of the country.


On top of that economic mess, add in a war. Next came the realization that it costs even more to put all the pieces together in Iraq than it cost to blow them up.


Yet, in spite of all of the naysayers (some of whom are still saying nay) the American economy is again growing at a respectable pace, even if it is not booming. People who were unemployed a short time ago are now cashing paychecks and buying all sorts of things. That extra money will keep circulating around in the economy and should maintain a respectable level of activity.


How did Bush and his team work this economic miracle?

In fact, it was quite simple. They found a way to slash the selling price of everything exported by U.S. industry while at the same time keeping revenues to the companies unchanged.

...

All that was required was for the Bush team to lop 18% off the value of the dollar. An importer in Frankfurt sees a price 18% lower in euro terms than a year ago. Yet, the U.S. factory owner gets the same number of dollars ? enough to pay salaries, which haven?t changed, and still bank a profit.

...

It sounds like the perfect solution. However, there are a couple of serious difficulties. For one thing, over time, American consumers will begin to notice the impact of the falling dollar. Sharply higher metal prices, for example, will eventually work through the system. Americans will soon realize that their standard of living has been lowered by 18%.

...

That brings up the second problem with using a cheap currency to turn around an economy. Not surprisingly, the Europeans are now getting in on
the game and rushing to devalue the euro as fast as the Americans devalue the dollar.
Last week?s sharp drop in the gold price came as traders suddenly realized that the value of the euro was not going to keep going up forever.


Canadians are cheering because the Canadian dollar is up *% on its U.S. counterpart. One day Canadians will wake up and realize the reality that the Canadian dollar isn?t up, but that it has lost a great deal of value with respect to the rest of the world.


The Chinese are right on top of the situation. Having pegged the Yuan to the dollar, they are in the lead position in the race to debase currencies and their goods keep flooding into markets around the world.
The competition among governments to see who can devalue their currency the fastest is not going to end any time soon.

 

[xxxxxJohnGaltxxxxx]

The dollar will continue to depreciate relative to most of the foreign currencies by 10-15% this year, which is much welcomed relief to our current-account deficit?let the Europeans finance our deficits for awhile If the Japanese weren?t buying trillions of greenbacks over the years, in an effort to slow the decline in value, it would have dipped another 20%, I suspect?lots of forces trying to elevate the dollar, but in the near-term, this depreciation is godsend.

 

[Ferocious]

One of the reasons for the temporary uplift in manufacturing activity in the USA is a weak dollar.

Ironically though Bush wants a strong dollar policy.

So Bush's economic failures seem to be good for the country in one temporary aspect.

 

[xxxxxJohnGaltxxxxx]

Originally posted by: Ferocious

Ironically though Bush wants a strong dollar policy.

Yea, sure he does....interested in a bridge? Snow said the same thing, then the go into the back offices and laugh about such a stupid proposition...foreign governments know that this is not the case...we want to narrow the current-account deficit and a declining dollar exacerbates the speed at which this can be achieved.

 

[Witling]

JohnGalt, it's my impression that much of our national debt and deficit is financed by foreignors. If this assumption is correct (and it may not be), why would foreignors continue to invest when they're going to be paid off in money that's worth less than the money that they invested. They would be better to simply hold on to their own currency. And, when this crisis in belief comes, the U.S. financial market is going to tank bigtime.

 

[Nietzscheusw]

The dollar will go down againi as soon as most of those who had massively shorted it will have closed their positions. They will then open new positions, shorting the dollar again.
In the end the World will buy the USA for peanuts.