The Sad State of the American Dollar

November 15, 2004 10:57 PM

Dollar's Decline Is ReverberatingAll this talk about blue state, red state. How's the state of the one thing we all think about equally in common coming along? Isn't it time for a serious, non-partisan, "morally" neutral dialogue on the state of the US economy?
posted by crasspastor (61 comments total)

When our economy finally collapses, we won't have any friends to help us out. Oh, except England and Poland.
posted by fleener at 11:23 PM on November 15, 2004

You can forget Poland.

President Aleksander Kwasniewski (translated): "They deceived us about the weapons of mass destruction, that's true. We were taken for a ride."
posted by bashos_frog at 11:29 PM on November 15, 2004

Riiight.
posted by Witty at 11:32 PM on November 15, 2004

Who needs friends when you have teh guns?
posted by spacewrench at 11:35 PM on November 15, 2004

I don't think there's any need for economic doomsday predictions, as the dollar could use a healthy devaluation. It would cause inflation, but would help ameliorate the negative trade balance. Although interest rates are on the rise, they're still low, so I don't think a period of rising inflation and high interest rates is in our future either. I suppose it could be a problem if China and Japan see the value of their Treasuries falling precipitously and start selling though.
posted by h00dini at 11:36 PM on November 15, 2004

Guns don't mean squat when the world is united against you. The U.S. is taxed out with just Iraq and Afghanisan. Do you think Americans would go for drafting every man and woman, 15 to 45? Oh, sure, you're thinking nukes. Well, nukes aren't any good unless you plan to use them, and if you use them, you pretty much screw yourself while you're screwing the planet. (But then, the neocons want to see Jesus again real soon, so maybe that was their plan all along.)

Nope. Military empires always fall. The USSR fell. America will decline due to massive debt. It won't go away, but it will be a shell of its former self. I give us two decades, if the neocons don't destroy the world first.
posted by fleener at 11:46 PM on November 15, 2004

It sure hasn't hurt me any - I get paid in yen, and it worked out to about a 10% raise over the last 6 months.
posted by bashos_frog at 11:46 PM on November 15, 2004

I'm curious, where are all the conservatives who were so upset with Japan Inc. buying up the U.S. in the '80s?

Have they not noticed how much economic power China is accumulating over the US?

I believe we're in a mutually assured destruction scenario with them right now, economically - but what happens if they can cultivate the Indian and Japanese markets? They'd be in a position to flush the US economy down the toilet.
posted by bashos_frog at 11:52 PM on November 15, 2004

I thought red-staters didn't care about the economy... just values.

Guns don't mean squat when the world is united against you

I think the real question is what it would mean if the world was united with the US, and we still had economic problems. Would the IMF step in with lots of cash? Would we receive foreign aid?

Military empires always fall. The USSR fell. America will decline due to massive debt.

Shouldn't the truism be "empires always fall... military empires fall faster"?
posted by namespan at 11:53 PM on November 15, 2004

I believe we're in a mutually assured destruction scenario with them right now, economically - but what happens if they can cultivate the Indian and Japanese markets? They'd be in a position to flush the US economy down the toilet.

And if anyone can play that game, not only in terms of sheer economic mass, but in terms of cleverness, it's the Chinese.
posted by namespan at 11:54 PM on November 15, 2004

Remember: the weak dollar policy is very intentional. It's meant to help reduce the trade deficit.

The trouble with this is that so long as China keeps the yuan pegged to the dollar, currency policy will have little impact on the US-China trade balance.

Have they not noticed how much economic power China is accumulating over the US?

How so? They have yet to become a major market for US products, and there's little to no direct investment from China to the US (as opposed to the other way around). I suppose low labor costs there are holding down inflation here, but that's countered to some extent by competition for natural resources, which fuels inflation.

And if anyone can play that game, not only in terms of sheer economic mass, but in terms of cleverness, it's the Chinese.

Ahhhh, those inscrutable Asians are so clever....
posted by mr_roboto at 12:00 AM on November 16, 2004

This is definitely intentional, but in many ways dangerous for the US. It's giving the Euro a lot of credibility as an alternative reserve choice. Here's keeping fingers crossed that the Bush administration screws this up too. The world could use one less military empire.
posted by sic at 12:11 AM on November 16, 2004

Too bad it can't be JUST the people who voted for the ones in office to suffer the Dollar's decline.

Upside - American Made might happen as imports will cost more dollars.
posted by rough ashlar at 12:18 AM on November 16, 2004

Talk of a doomsday scenario are wide of the mark. Neither the Europeans or Asians want to see economic collapse in the USA, because their own economies would suffer badly as well. It might be humbling for Bush to have to ask the international community to help prop up the dollar, but the international community will help. Interest rates will have to rise, but that is not necessarily a bad thing. Americans are living on credit and not saving enough.
posted by salmacis at 1:00 AM on November 16, 2004

Well, if I was American, I'd be a bit more worried - the russians have recently shifted to pricing their oil in euros, and if other oil exporters do the same (Russia is the second largest producer), this will severely curtail the need to buy dollars, further decreasing the value of the dollar and frightening off foreign governments buying bonds. It seems that the US economy is essentially being propped up by its enemies who lend it money.
posted by BigCalm at 1:32 AM on November 16, 2004

Paul Krugman doesn't think oil pricing in Euro is a big deal.
posted by salmacis at 2:20 AM on November 16, 2004

How so? They have yet to become a major market for US products, and there's little to no direct investment from China to the US (as opposed to the other way around)

The chances of a stronger yuan helping China Inc. go global and confronting U.S. corporations with a new challenge also are rising.

Just wait until it helps Chinese textile manufacturers buy up what's left of the U.S. textile industry. Or aids Chinese electronic firms in acquiring key U.S. component makers. Or empowers Chinese energy companies to buy U.S. ones. Or when a stronger yuan empowers Chinese real estate tycoons to snap up trophy U.S. properties.

Such scenarios may seem less far-fetched to Canadians watching events at Noranda, the mining company. China Minmetals, a state-owned company, is offering about 7 billion Canadian dollars, or $5.6 billion, for Noranda. Some Canadian members of Parliament are trying to block a bid that could merely be the first of many for North American companies.

Japan's history may be instructive here. In the 1970s, the idea of the Japanese, whose economy was all but destroyed by World War II, scooping up high-profile names like Columbia Pictures, Pebble Beach, Rockefeller Center or Universal Studios seemed preposterous. Yet by the 1980s, you may have been traveling to Tokyo or Osaka if you wanted to see your favorite Picasso or Van Gogh painting.
...
During the 1980s, foreign direct investment outflows from China averaged $450 million annually. That grew to $2.4 billion in the 1990s and so far in this decade it has averaged $3 billion. That's a negligible sum, but the Japanese began with a similarly quiet tickle.

Also this:
According to the Treasury Department, major foreign holdings of U.S. Treasury securities total $1.35 trillion. Over the first seven months of 2003, mainland China and Hong Kong accumulated $177 billion of U.S. debt.

and this:
Chinese holdings in the U.S. debt have more than doubled since 2001. Other countries holding major investments in the U.S. debt include Japan, the United Kingdom, Caribbean Banking Centers, Germany and Korea.
posted by bashos_frog at 2:31 AM on November 16, 2004

It sure hasn't hurt me any - I get paid in yen, and it worked out to about a 10% raise over the last 6 months.

I was similarly confident about being paid in won, back in 97/98, when the Korean economy (along with others in the region) went kablooie, which unfortunately coincided with my departure from Korea for a couple of years to live in Australia. Lost about half my life savings on exchange rates, that time, thinking that I wouldn't be coming back.

C'est la vie. 'Life savings' was a pretty grandiose phrase for it.
posted by stavrosthewonderchicken at 3:23 AM on November 16, 2004

This thread is sheer ignorance. The US economy is somewhere between good and great. An expensive Euro means zero, except, perhaps that Brussels has morons for economists.

Won't you every learn? Are we buried by the Soviets yet? Japan? Europe? China?
posted by ParisParamus at 4:11 AM on November 16, 2004

Paramus is so cute when he's gobshiting.
posted by Space Coyote at 4:24 AM on November 16, 2004

It really sucks for the hostelers. It's fucking 20 bucks a night for a dorm in Slovakia for god's sakes!
posted by goneill at 5:05 AM on November 16, 2004

PollyannaParamus strikes again. Really, I never get tired of hearing how "great" things are.
posted by psmealey at 5:24 AM on November 16, 2004

Indeed,if a weak currency was the prescription for long-run economic health, countries like Argentina and Mexico — which have suffered massive currency devaluations in the last decade — would be financial titans.

Ultimately, these economists say, the solution is for the U.S. government to reduce its massive budget deficit. That would curb the need for Uncle Sam to issue so many Treasury notes. And the dollar would rise on its own, because the deficit is the main reason it continues to fall.

Sounds about right.

This thread is sheer ignorance.

Enlighten us Obi-Wan with facts, data, links, not by spewing hyperbole.
posted by nofundy at 6:02 AM on November 16, 2004

I didn't say great, but somewhere between good and great.

Sorry if your tech bubble is still burst, but that's kind of a self-centered way to look at things.
posted by ParisParamus at 6:03 AM on November 16, 2004

The US is actually facing a serious rival the way the European Union is forming. Here we have a massive organization of countries that can unite under one economy to complete with the dollar in trade, yet politically and diplomatically remain individual countries with individual positions (and votes) in the UN.

I don't think the US is in the risk of collapse. However, I think all the "political capital" Bush claims he's earned with this election was as the expense of every ounce of economic and diplomatic capital he pissed through during his first four years.

We're in a state right now where, both financially and diplomatically, it is profitable for other nations to either be a very close ally to the United States, or to be in abject defiance of it. That's not just bad for our economy, but bad for our national security.
posted by XQUZYPHYR at 6:07 AM on November 16, 2004

We can't ALL work for WalMart, can we?
posted by tommasz at 6:25 AM on November 16, 2004

The US is actually facing a serious rival the way the European Union is forming. Here we have a massive organization of countries that can unite under one economy to complete with the dollar in trade, yet politically and diplomatically remain individual countries with individual positions (and votes) in the UN.

None of that makes any sense together. Can you clarify just why this rival behemoth we've been waiting for will emerge now?

[W]here are all the conservatives who were so upset with Japan Inc. buying up the U.S. in the '80s?

Hopefully those folks learned an important lesson about appearance vs. reality. And I don't recall that Chicken Little event breaking down along party lines. In hindsight, the outcry came from people who cared if the Japanese overpaid wildly for real estate because their banking system was screwed up enough to let them. I don't think that situation is analagous to what's being suggested here.
posted by yerfatma at 6:29 AM on November 16, 2004

I'm curious, where are all the conservatives who were so upset with Japan Inc. buying up the U.S. in the '80s?

...and later!...

The US economy is somewhere between good and great. An expensive Euro means zero, except, perhaps that Brussels has morons for economists.

Ah! There they are!

Paris and fellow conservatives, lemme axe you this: do you know how much of the national debt is foriegn-owned? How about the total foriegn stock holdings in U.S. companies? I'll tell you how much: exactly a shitload.

And do you know what happens when investor confidence goes down? What would you do when the company you invested in can't keep its debt paid down (forget about the question of "what do you do when the company you invest in keeps fucking up international stability" for a moment)? You do what the Japanese did in the 80's, that's what you do. You dump the stock. Take your cash and invest it someplace less... volatile. And buy it up on the cheap.

" Paul Krugman doesn't think oil pricing in Euro is a big deal."

That's because Europe is able to keep its operating cost in relation to debt in check. Amazing, every week there's news of new countries joining the EU, much to the consternation of conservatives over here, particularly fiscal ones, who bemoan Europe for its stupidity in taking on these less-wealthy neighbors. And the Euro goes down for a little bit, and then it goes back up again. Just amazing.
posted by Civil_Disobedient at 6:30 AM on November 16, 2004

Have they not noticed how much economic power China is accumulating over the US?A greater threat from China is their increasingly ravenous appetite for raw materials. The cost of building materials in my area is up 50% and more, and this is always attributed to the demand in the Chinese market. They've also, as I understand it, become the world's second largest consumer of oil.
posted by Slothrup at 6:36 AM on November 16, 2004

The moderating influence - on foreign investors holding increasingly dubious US debt notes - of concern over an economically devasted US should not be downplayed.

Foreign players can be expected to game America's economic slide, to manage it as gradually as possible. Otherwise, the already substantial threat - of America, taken over by the radical Christian right, launching a widespread crusade for actual ( not merely hegemonic ) world dominion - grows exponentially.
posted by troutfishing at 7:16 AM on November 16, 2004

yerfatma, remember that the Japanese bubble was built on wildly overinflated real estate prices, and also that the U.S. had enough pull to force the Plaza Accords (which revalued the yen).

Neither of those things is happening with China, their growth is based on a somewhat more solid foundation, and they are quite openly refusing to unpeg the yuan from the dollar.
posted by bashos_frog at 7:20 AM on November 16, 2004

We can't ALL work for WalMart, can we?

Of course not. Don't be so silly! Some of us can work for Starbucks, some of us can work for Blockbuster, and the rest can work for McDonalds. As long as we all continue to buy cheap, shoddy imported goods, drink outrageously overpriced coffee, entertain ourselves with overblown Hollywood schlock, and eat beef, we will be fine.

Personally, our little family tries to keep our credit card debt just under staggering. If we let it go to staggering- red alert status, we are afraid we might get a visit from Vinny "The Enforcer" swinging a baseball bat and saying, "Hey, how ya doin? China just called and de want deir money paid back right NOW!"
posted by Secret Life of Gravy at 7:21 AM on November 16, 2004

This thread is sheer ignorance. The US economy is somewhere between good and great.

So much for a non-partisan discussion.

Seriously, anybody know good places to make foreign investments?
posted by fungible at 8:12 AM on November 16, 2004

So much for a non-partisan discussion.

Right, because it was all so balanced previous to that.

remember that the Japanese bubble was built on wildly overinflated real estate prices

Which were a result of an incredibly flawed banking system that few recognized. I just wonder if China's foundation has similar cracks (not that that excuses any problems in the US economy). I think this is an interesting discussion, I'm just not persuaded by statements like "increasingly dubious US debt notes". In markets where actual currency is spent, people are still buying US debt. If the US dollar is actually headed for a crash, discussing the strength of the Euro is meaningless; the world's economy will come crashing down regardless of what other currencies exist. It's like talking about moving up to the penthouse of a building whose foundation just gave way.
posted by yerfatma at 8:39 AM on November 16, 2004

It sucks for vacationers in Europe. I'm not an economist, so maybe someone can help me here. If 1 Euro costs $1.30US, does that mean everything will cost me 30% more in Europe? Will a 99 cent cheeseburger cost me $1.30?

My girlfriend recommends buying some Euros NOW before it gets even worse. Is that crazy or smart?
posted by afx114 at 8:57 AM on November 16, 2004

Is that crazy or smart?

Playing the F/X markets is definitely not for the feint of heart. Even if you have a tremendous hedge fund, you can lose your shirt overnight. Medium term, the dollar is still a better bet than the euro, just based on the fact that the national debt is still relatively low versus gdp, and American gnp still outpaces that of the EU by a couple hundred basis points (2%) at least. Besides, anything can happen in Europe to drive the Euro down.
posted by psmealey at 9:09 AM on November 16, 2004

psmealey, I'm talking in terms of a vacation in a couple months, not investing. How fast/slow can the rate go up or down? Because if the exchange will be $1.50 for 1 Euro in 2 months, I'd like to buy some Euros now while they're only $1.30.
posted by afx114 at 9:20 AM on November 16, 2004

"Our customers can save 50% when we produce molds for them in India rather than here," Harkness said. "My ideal scenario is not to have a plant in California at all."

Yep, it's looking mighty fine. One of the main problems with the "intentional" argument is that not all that is going haywire is "intentionally" driven to do just that. The other is that, hey, "intentional" does not necessarily mean "well-thought out" or even "beneficial". Much less with an administration not keen on recognizing its own blatant mistakes.
posted by magullo at 9:20 AM on November 16, 2004

But it's a good time to do your christmas shopping in NYC! $2 for £1 economists here are predicting. Shame all the savings will go on somewhere to stay and the drugs and the women and the shows and the cabs and the ...
posted by bonaldi at 9:24 AM on November 16, 2004

Paul Krugman doesn't think oil pricing in Euro is a big deal.

Although that's probably still true, some of the other stuff in that linked article is out of date. The timestamp on it is from 1999. Things may have changed since then. In 2001, Krugman is quoted as saying:

But would a sharp drop in the dollar be a catastrophe? Probably not. In fact, if the dollar is going to plunge one of these days, now would be a pretty good time. I wouldn't have said that a year and a half ago; but times have changed.

Again, times may have changed since way back then. More recently, Krugman is reportedly saying that the US may be "heading for a South American style financial crisis."
posted by sfenders at 9:29 AM on November 16, 2004

It's all locally optimized, to use a systems term. Companies like the one magullo mentioned are doing what's best for them or their customers without regard for the effects it will have on their (soon to be former) employees. Which then affect the local economy, which will then etc. Yes, WalMart (my personal bete noir) employs a lot of people, but at what salary/benefit level? And yes, they keep prices low, but their ability to effectively tell suppliers what price they're going to pay forces them to do what magullo's example company did. Until we realize that these actions have large ramifications, we're screwed.
posted by tommasz at 9:33 AM on November 16, 2004

afx114 , your GF might be right, get a few hundred vacationbucks in euros now, then wait and see a little. (I wouldn't bet my entire vacation fund and neither should you)
posted by dabitch at 9:33 AM on November 16, 2004

I like Krugman's writing as much as the next guy, but isn't calling him an influential economist (in the linked article) kind of an exaggeration? I'm pretty sure he's just a college econ professor with a weekly Op-Ed column in the Times. We're not exactly talking John Kenneth Galbraith here, are we?

afx114, sorry, my bad. I missed where you said it was for vacation. I wouldn't worry about it as, unless something cataclysmic happens, in which case you probably won't be travelling, the variances in what you'll save will probably just be pennies. If you want to hedge, I would calculate half of what I thought I was going to spend there, and convert that portion into Euros and leave the rest in dollars.
posted by psmealey at 9:36 AM on November 16, 2004

See also last month's open letter to the President, from some influential economists at the Harvard Business School and elsewhere.

"Ignoring the fiscal crisis that has taken hold during your presidency may seem politically appealing in the short run, but we fear it could ultimately prove disastrous."
posted by sfenders at 10:05 AM on November 16, 2004

Remember: the weak dollar policy is very intentional. It's meant to help reduce the trade deficit.

The Treasury Secretary disagrees with you: Today in Dublin, O'Neill's successor John Snow said, "Our policy on the dollar is well known. We support a strong dollar. A strong dollar is in America's interest."
posted by Jairus at 10:40 AM on November 16, 2004

"That's because Europe is able to keep its operating cost in relation to debt in check."

Last time I looked, Europe had more public debt, as a function of GDP than the US. Also, Europe is heading for a demographic Armageddon, in terms of not enough babies to pay for retirees.

Only a deluded, hopelessly socialist loon would view the US economy as in worse shape than the EU's.
posted by ParisParamus at 2:33 PM on November 16, 2004

The Treasury Secretary disagrees with you: Today in Dublin, O'Neill's successor John Snow said, "Our policy on the dollar is well known. We support a strong dollar. A strong dollar is in America's interest."

If you actually read the article that you've linked to, you'll see that you have to take that comment in context. As far as the public comments of the U.S. Treasury Secretary go, even a weak dollar had better be strong.

Only a deluded, hopelessly socialist loon would view the US economy as in worse shape than the EU's.

Keep in mind that the EU is still only a pseudo-single economy. I'd be pretty delighted with the Irish economy, and recent GDP growth in Spain is looking pretty good. Italy, though....
posted by mr_roboto at 3:09 PM on November 16, 2004

I don't know if I can (or should) post an image ripped off Yahoo's finance section, but here goes:

http://ichart.finance.yahoo.com/2y?usdeur=x



Look at that two year decline of the US$ against the euro. Damn.

Now, I'm not into "trends" or anything, but that can't be a good sign for the US.
posted by krisjohn at 5:16 PM on November 16, 2004

"Keep in mind that the EU is still only a pseudo-single economy. I'd be pretty delighted with the Irish economy, and recent GDP growth in Spain is looking pretty good. Italy, though...."

Well, I don't believe for a second that many points of unemployment, and deficits are actually hidden by the Eurocratic Capitals.

By the way, the Oil for Food Scam is Up to 21 billion +, and rising. Gee, that probably ginned-up the Euro-economy a bit, no?
posted by ParisParamus at 5:42 PM on November 16, 2004

Look at that two year decline of the US$ against the euro. Damn.

It looks much worse than it actually is because Yahoo neglected to put zero at the bottom of the scale.
posted by kindall at 6:42 PM on November 16, 2004

Oil for food?

What the shit the oil for food stuff has to do with the American dollar is beyond me, but why oh why are you putting so much faith in an Iranian spy to tell you what was happening with the oil for food program. Why do you love iran so much?
posted by Space Coyote at 6:47 PM on November 16, 2004

kindall: I think my adfilter deleted your sarcasm tags.

Also, have we established that Paul Krugman's article linked-to by salmacis is five years old?
posted by krisjohn at 7:18 PM on November 16, 2004

Space Coyote: get your head out of your you-know-what and take a look at some real newspapers. Iranians? Try everyone in the entire world.

What does Oil-For-Food have to do with this? Simple. If France and Europe are corrupt enough to underwrite Oil-For-Food ("OFF"), they're corrupt enough to lie about their economies--VALUES MATTER.
posted by ParisParamus at 7:51 PM on November 16, 2004

Oil For Food: @21 Billion, the largest crime in history. THANKS FUCKING FRANCE.

Let's de-fund the UN NOW.
posted by ParisParamus at 7:53 PM on November 16, 2004

You tried to sneer last time I posted a link to the fucking Washington Post, well I apologize but I couldn't find the story written up in NewsMax.

Paramus theatre continues...
posted by Space Coyote at 8:31 PM on November 16, 2004

For pete's sake, get a grip, y'all. Currency markets aren't as simple as high dollar value good, low dollar bad. As someone pointed out upthread, it helps our trade deficit among other things. Why do you think that China artificially suppresses the yuan by pegging it to the dollar?

Economic doomsayers, chill out. Europe is already talking about how they can devalue their currency. Seriously, think about it: increased euro value + high minimum wages in the EU + screws with their trade deficit = ? (Hint: Not Good)

It's not "partisan" to say that the U.S. has a strong economy and that we don't have all that much to worry about -- this coming from a lifelong, diehard leftist. In terms of long-term trends we do have some stuff to work on, but our fundamentals are still quite sound. Also, we're not the only economy that's struggling at the moment.
posted by spiderwire at 9:59 PM on November 16, 2004

The EU might look awful to some, but I'll pick it over massive deficit, negative trade balance, negative job growth, weak currency and a great plan to drive oil prices up (wow, just wow). As I said earlier, the weak currency is not an isolated piece of ugly-looking data - it's more like the norm as far as the U.S. is concerned.
posted by magullo at 3:52 AM on November 17, 2004

Remember that the falling US dollar is more of a symptom than a cause, where the low dollar will have advantages and disadvantages (though the major advantage is negated by China's pegging of their currency to the US dollar) what people should be worried about is what other symptoms will arise from the root cause (budget / trade deficits, little to no manufacturing jobs being created, unsustainable real-estate markets, etc.)
posted by Space Coyote at 4:10 AM on November 17, 2004

kindall: I think my adfilter deleted your sarcasm tags.

I must have missed them too, because I thought his point was the graph's range is intentionally small. If you streched both axes and looked at the comparison in a larger range over more time, I doubt it would seem so interesting.

No one has ever clearly explained the evils of a trade deficit to me.
posted by yerfatma at 4:16 AM on November 17, 2004

The world economy is on a collision course

The US as a Net Debtor: The Sustainability of the US External Imbalances
posted by sfenders at 7:35 AM on November 17, 2004

more at brad delong
posted by specialk420 at 3:10 PM on November 17, 2004