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The Falling Dollar

The solution, not the problem

By Dean Baker

In the same way that men are prone to boast about the size of certain body parts, policymakers like to tout the merits of a strong dollar. While the former is usually harmless, promoting an overvalued dollar can be an incredibly destructive economic policy. Fortunately, the United States is moving away from its high dollar days, although not quickly enough,… return to article

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    The dollar was the reserve currency, the standard worldwide.  Contrary to the writer’s remarks above, the dollar has declined in value by 30 percent over the past four years while our trade deficits continue to record records each and every month.  Japan and China hold vast reserves of our dollars, that Bush has allowed to decline to unprecedented levels.  They are losing huge amounts of money as the dollar depreciates and are in the precarious position of either dumping dollars—and thereby destabilizing the world economy—or continuing to lose even greater sums.

    OPEC countries and Russia are already dumping dollars and have been for the past four years.  Four years ago OPEC countries, for example, retained 75 percent of their portfolios in dollars; this year the margin is 60 percent.  That’s a 20 percent drop.  This past week market forces, that are at this time unknown, has purchased dollars to shore up the international economy and, in essence, giving the U.S. a bit of a reprieve.  It will not last long.  The World Bank and other international institutions and, indeed, countries are forcefully urging the U.S. to take steps to strengthen the dollar.  Despite Bush’s statements that he believes in a strong dollar, he has done absolutely nothing policy-wise to follow through on his assurances.

    At this rate the Euro will surpass the dollar as the reserve currency, continuing the decline of the U.S.’s power and prestige, with dire consequences. 

    Today it was reported that the rate of inflation ballooned last year to a rate of 3.3 percent.  Inflation coupled with the decline in the dollar are critical warning signs that the U.S. economy is not as rosy as the White House insists.  We are, in fact, on the brink of a fiscal precipice.  Is anyone watching?  Will anyone step forward to halt the downward slide before the rug is pulled completely out from under us?  It is highly doubtful at this point.  You cannot correct a problem if you refuse to admit there is one.

    United States Posted by Sharon Andrews on Jan 19, 2005 at 12:56 PM

    Unbelievable as it seems the collapse of the US economy is the only thing that seems capable of stopping the present wars of aggression pursued by the present US administration and is as such “good news”.

    If you had asked me four years ago if I were looking forward to a depression I’d have walked away from you scratching my head.

    This regime has broken every single thing they have touched since seizing power in 2000.

    At this point… sooner rather than later, please.

    United States Posted by John Francis Lee on Jan 19, 2005 at 7:04 PM

    Yes, Yes, Yes, I agree with Mr. Lee. Since a poorly educated and thoroughly manipulated public can’t do it, a corporate controlled media can’t do it, no other military power can do it, maybe, just maybe, an economic collapse is what it will take to throw some water on this fire. It may also have the added benefit of ridding us of this death mongering president and all of his cronies. And what if we re-ordered our national priorities in the aftermath, such that our own domestic problems, health care, jobs, education, energy independance, environment, infrastructure, social programs, etc, became more important than wars fought to control resource rich parts of the world and enrich military contractors. Note to China and Japan; Save us from ourselves! Stop buying our debt.

    United States Posted by Kenneth D. Brown on Jan 19, 2005 at 7:56 PM

    Maybe I’m way off the mark, but using my 3rd world years, age, and personal view, what I see going on is simply a willful, deliberate design by the US (or whomever pulls the strings) ruling class to turn the States into another third world country.  The slogans, decals, yellow ribbons, rhetoric, and plastic flags are the symbols they use to play the passions of Joe Blow, but the goal is to reduce Joe to his counterparts in Latin America, Asia, Africa, etc.  The system of propping up a small wealthy ruling class while the masses live with the minimum needed to support life, has worked so well for us globally, why not right here at home? I was out of the US during the 80s.  On my return I was absolutely stunned at the changes in a decade, changes so similar to third world countries.

    Who needs 200 million Joe Blows to buy tv’s and tennis shoes when billions of Indian and Chinese (who manufacture most of it anyway) can buy them (cheaper price tag but billions more). I recall once, on a project in Honduras (just 1 of thousands ‘round the world), how the system seemed to work.  The US “gives” and/or “lends” taxpayer dollars to the foreign nation, in exchange for “markets.” We provide their government $$$ to build roads, a few clinics, a few schools, and in exchange they give a military base, land for bananas with tax breaks, cheap factory labor, buy our weapons, etc. with our $$$.  After a brief few months that stretch of highway is finished, the laborers again unemployed but wearing new jeans and always Coke Cola, still unable to send their kids to school b/c someone has to sell the Chichlets.  But a few foreign government officials got richer and Wall Street does well. 

    I think the wars, depression, all coming, is what our “leaders” have planned for us for quite some time.  Again, why sell $200 sneakers to a few million when billions in the emerging markets abroad will pay $20. 

    Long lines, government cheese, beans and rice, just around the corner.  But Joe Blow is ready to sell Chichlets for the BushCo cause and all......giving Bush a mandate.

    United States Posted by elita on Jan 20, 2005 at 5:45 AM

    Home run!  He nailed it. A little bit of inflation will go a long way for the US worker and your local union.

    We have a trade deficit with several despotic regimes that have not only crushed our unions, but have created a two tiered United States whereas you have the affluent and the lower economic class.

    I would love to see my mortgage inflate away as our salaries rise, I would love to see unions relevent again and I would love to see 7% interest rates so that saving money would actually be encouraged and investment would take place in our local communities rather than China and Mylasia.

    United States Posted by Tony Austin on Jan 20, 2005 at 11:14 AM

    Nooooo… it can’t possibly be the fault of George W. Bush that the dollar is weak. How could anyone have such a thought. After all, we’ve all heard him say it..."we support a strong dollar”—Ya see! He very strongly says he in theory supports a strong dollar not a weak dollar!  Gee, I guess Alan Greenspan’s thirteen straight interest rate cuts had nothing to do with the weak dollar. After all, he did want to make sure that George W. returned to office so he could support a strong dollar. Right? Hmmm, tax cuts and deficit spending—well, that was intended to strength the economy and thus stengthen the dollar—see how well that worked? Oh yeah, the Iraqi war. See how that cheapend the price of oil? Great idea, Wasn’t it.
    Oh yeah, one more thing...Free, fair trade.  Isn’t it great! We ship our jobs overseas, China pegs it currency to ours, supports our growing deficit so we spend more and in return we get cheap t-shirts.  Isn’t that a great economic policy?? Why didn’t Bill Clinton think of this? Gee, all he
    created was eight straight years of economic growth, a strong dollar, booming stock markets, the world wide web, cell phones, PEACE. Yeeech, Who wants that?

    United States Posted by Richard on Jan 20, 2005 at 10:33 PM

    Madprops@elita for getting it.

    Actually the decline in value of the U.S. dollar relative to other currencies has been slowed, not by the Bush gubmint, but by market forces.

    Euro’s are flooding our country in the form of private purchases of U.S. assets, mostly real estate. This is a good thing as we will return those Euro’s in form of purchasing European debt instruments.

    What goes around, comes around. Don’t worry, be happy. Fact is 30% of world gros product is generated by the USA. If we could just sell more books and fewer bombs, or as The Honorable Cynthia McKinney recently put it, “Dignity not dictatorship” we just might realize global peace and prosperity.

    United States Posted by Brad Thrasher on Jan 23, 2005 at 11:14 AM

    This article completely ignores our trade policies that have lessened exports and increased imports. It ignores our policy at the State Department and the IMF that has put third world countries in debt and forced them to sell their resources to multinational corporations which export their products to the US. It completely ignores that a falling dollar isn’t going to help us now because so many of our factories are now closed.

    I can’t figure out why In These Times publishes article from CEPR. They are a bunch of ex-Reagan officials. They aren’t even for a progressive income tax. Lets support Progressives instead of supporting these rightwing ideologists.

    United States Posted by Tom Coppini on Feb 5, 2005 at 11:51 PM
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