And So It Begins...

[Anonymouse]

Administration Calm Despite Dollar's Woes

Sun Nov 14, 3:46 PM ET Business - AP

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - America's trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europe's common currency. But the Bush administration has reacted with remarkable calm to developments that raise worries about a possible dollar crisis.

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Treasury Secretary John Snow, when asked, sticks to his standard comment that the administration's position in favor of a strong dollar has not wavered.

Beyond such utterances has come no single government action. During its four years in power, not once has the administration intervened in currency markets to support the dollar or done anything else to stop the dollar's slide.

At one point last week, the greenback hit an all-time low when it took $1.30 to buy one euro, the common currency used by 12 European nations. That rate was down 8 percent from where the dollar stood in relationship to the euro just three months ago.

The slide means that a vacation for Americans in Europe is now more expensive, and European products coming into this country will cost more.

Most economists say the dollar, already down by about 10 percent over the past two years against a market basket of foreign currencies, has yet to reach its lowest point. In fact, some think the dollar needs to decline by 10 percent more to deal with climbing U.S. trade deficits.

"The trend to a weaker dollar is going to continue. The trade deficit is just too big," said David Wyss, chief economist at Standard & Poor's in New York.

The dollar's record low against the euro coincided with the government's report that the United States was running a trade deficit through September at annual rate of $592 billion. That compares with last year's record $496 billion.

As a result, the country is having to borrow almost $600 billion from foreigners this year to pay for the imported cars, televisions and other items Americans are buying.

Foreigners so far are more than willing to lend the money. The unsettling worry, however, is what could happen if foreigners suddenly lost interest in holding dollar-denominated investments. The outward rush from U.S. stock and bond markets could send stock prices crashing and interest rates soaring.

The rest is here:

http://news.yahoo.com/news?tmpl=story&u=/ap/20041114/ap_on_bi_ge/dollar_troubles

[HyeJinx1984]

Soon the great empire will crumble... and the shadows will be upon us once more... then, who shall rule the ashes of our world?

[nunechka]

i told you guys, we are getting so screwed... it is so pathetic...

[HyeJinx1984]

This can turn out two ways... either it can turn out GREAT or it can turn out HORRIBLE.

[Anonymouse]

If China lost interest in holding U.S. dollars, it smells really bad for this country. That's the price you pay for having a Federal Reserive and fiat money.

[Anonymouse]

http://www.mises.org/fullstory.aspx?Id=1670

Here is a very good article on America's unsustainable boom. Of course it is not for layman. At least some economic background is preferred.

[loseyourname]

If China lost interest in holding U.S. dollars, it smells really bad for this country. That's the price you pay for having a Federal Reserive and fiat money.

An international standard currency would go a long way toward easing the ills of this problem, although it wouldn't address the root causes.

I'm just waiting for all the posters to come in here asking the government to do something about this. Aside from abolishing the federal reserve, this isn't the government's problem. Trade deficits occur because we consume more than we produce as a nation. It is the people that consume and produce. Buy less and produce more and we wouldn't have this problem. Any downfall is our own doing.

[patlajan]

An international standard currency would go a long way toward easing the ills of this problem, although it wouldn't address the root causes.

I'm just waiting for all the posters to come in here asking the government to do something about this. Aside from abolishing the federal reserve, this isn't the government's problem. Trade deficits occur because we consume more than we produce as a nation. It is the people that consume and produce. Buy less and produce more and we wouldn't have this problem. Any downfall is our own doing.

Not when part of the trade defecit is based on anti competative practices. We need to kick China in the nuts with some mild trade tariffs, in retaliation for their monetary practices. China keeps their currecny artificially low and helps itself to an even bigger trade defecit. They fake our products, and steal our technology. The last 10 years have been a free ride for the Chinese.

Unfortunatly we need them to keep a lid on North Korea. It's basicly extortion coupled with bribery. I say bribery because there are many upper level executives that benfit no matter where goods are sold or made. As long as they find a destination. Cheap Chinese made goods sell like hotcakes in Walmart for example which makes it is easy to turn a blind eye while C-level executives fill their pockets at the expense of our economy.

Supporters push this as "free trade" when it only seems free going in one direction to me.

[Anonymouse]

An international standard currency would go a long way toward easing the ills of this problem, although it wouldn't address the root causes.

I'm just waiting for all the posters to come in here asking the government to do something about this. Aside from abolishing the federal reserve, this isn't the government's problem. Trade deficits occur because we consume more than we produce as a nation. It is the people that consume and produce. Buy less and produce more and we wouldn't have this problem. Any downfall is our own doing.

People are guilty for consuming? That sounds like the Marxian-Lite mantra they spew at marxist.org. The problem here is not the deficit itself, it is that large amounts of U.S. Treasury debt are held by foreigners, China and Japan for one. Here is Hans Sennholz with the insight:

"Facing the mountain of debt, even President Roosevelt would be frightened today as nearly one-half of the U.S. Treasury debt is held by foreigners. The Bank of Japan alone owns $440 billion of Treasury securities, the Bank of China some $122 billion. Other Asian governments hold $166 billion. They have become major creditors because U.S. trade deficits, which are a direct consequence of the super stimulation, now exceed $500 billion a year. Yet, U.S. dollars do not readily plunge in foreign exchange markets, as other currencies would, because they are special, they are the primary reserve currency of the world. Central and commercial banks and millions of individuals all over the world hold and use them; some central banks eagerly purchase them in order to assist their own export industries. In Keynesian fashion, they promote employment by weakening their own currencies.

"A small debt makes a man your debtor, a large debt makes him your enemy." If this old saw holds true also for governments, the U.S. government must have countless enemies and be making more every day. Foreigners are financing the American purchase of goods and services, half a trillion dollars worth every year, which visibly sustain American standards of living. Foreigners are investing in U.S. Treasury obligations and dollar assets, trusting in the continuing integrity of the U.S. dollar. But with the stock of dollars rising incessantly and American debt soaring at disturbing rates, their trust is wearing thinner every day. By now, they may be considering the following scenarios.

No central bank on earth, not even the Federal Reserve System, can continually inflate its currency and defy market rates of interest without harming both its currency and the economy. Inflation tends to accelerate and ultimately destroy the currency and cripple the economy. And no government whatsoever can suffer budget deficits of half a trillion dollars annually without impairing its standing with its creditors. Piling debt on debt undermines their trust and raises the crucial question of debt resolution."

With the ever continuing printing of paper money and credit expansion by the Federal Reserve, the dollars devaluation will continue, and likely one day the age of the world dollar standard will end, and when that happens, America won't be the 'best country in the world' anymore.

[patlajan]

"A small debt makes a man your debtor, a large debt makes him your enemy."

That adage is wrong. These debts are scheduled to be paid over time, and if anything makes for stronger ties between nations.

No central bank on earth, not even the Federal Reserve System, can continually inflate its currency and defy market rates of interest without harming both its currency and the economy.

That's also wrong. The federal reserve can't inflate or deflate currency all that much. The value of any free trading currency is in the hands of the currency market. When a certain currency is in demand its value goes up and vice versa.