Nobel Peace Prize winner kills US Dollar
PIM of SPAIN | October 10, 2009 at 05:38 amby
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However measured in Euros - a more stable ruler than the ever-weakening dollar -, U.S. real per capita GDP is down 25% since 2000, while Germany's is up 4% and tops that of the U.S.
The questions are: Is expanding the Fed’s balance sheet by $1.4 trillion a strong dollar policy? Is a $15 trillion national debt a strong dollar policy? How about record budget and trade deficits – are those things that make up a strong dollar? Certainly not, that’s why last night, the dollar index - which tracks the dollar versus a basket of six major currencies - fell to a 14-month low of 75.78.
Mid-term elections are about a year away. And Obama and the congressional Democrats are looking for a way to hold on to their grand majority in 2010. Democrats recognize the tide is turning against them. A “secret job plan” has been developed to save Election Day. The Democrats want to keep the dollar cheap to get back manufacturing jobs from abroad. The reasoning is: An employed electorate is a happy electorate. MIT’s economic professor Simon Johnson explains why the buck will continue to fall and drown.
“Think what a weaker dollar does for the industrial heartland, where so many congressional seats will be in play and where today it’s easier to export or compete against imports because the same dollar costs convert into fewer Euros, yen, or renminbi (this is what a “weaker” dollar means—foreigners can more easily afford our goods and their stuff is more expensive to us). If the dollar stays weak or declines further, our car companies, machinery makers, and turbine blade manufacturers will soon be rehiring and we’ll finally get some job growth as part of our sputtering economic recovery.”
This plan will not work. If history is any indicator, it will fail miserably. David Malpass of Encima Global explains in the WSJ why this plan is a disaster in waiting:
“Some weak-dollar advocates believe that American workers will eventually get cheap enough in foreign-currency terms to win manufacturing jobs back. In practice, however, capital outflows overwhelm the trade flows, causing more job losses than cheap real wages create. This was the lesson of the British malaise, the Carter malaise, the Mexican malaise of the 1990s, Yeltsin's Russian malaise through 1999 and the rest. No countries have devalued their way into prosperity, while many—Hong Kong, China, Australia today—have used stable money to invite capital and jobs.
The more the dollar devalued against the yen in the 1970s and '80s, the more Japan gained share in valued-added manufacturing, using the capital from weak-currency countries to increase productivity. China is doing the same now. It watches in chagrin as the U.S. pleads with it to strengthen the Yuan, adding productivity fast with the dollars rushing its way in search of currency stability.”
If a cheap dollar won’t create jobs and the dollar lose buying power, who will benefit? The bankers on Wall Street and America’s large corporations overseas branches, of course.
With access to the Fed’s discount window, the zombie banks make a killing off the new dollar carry trade. And large corporations borrow cheaply to expand overseas operations.
If the banks and corporations are happy, everyone should be happy too? Wrong. Again David Malpass explains why all are worse off due to Obama’s cheap dollar policy.
“If stocks double but the dollar loses half its value, who beyond Wall Street are the winners and losers? There's been a clear demonstration this decade. The S&P nearly doubled from 2003 through 2007. Those who borrowed to buy won big-time. Rich people got richer, seeing their equity bottom line double. At the same time, the dollar's value was cut nearly in half versus the euro and other stable measures. Capital fled, undercutting job growth. Rent, gasoline and food prices rose more than wages.
Equity gains provide cold comfort when currencies crash. From the euro perspective, the S&P peaked at 1700 in 2000, finally retained 1100 in the 2007 bubble, fell below 600 in March and now stands at 700. With most of the market capitalization of U.S. stocks held by Americans, the dollar devaluation has caused a massive decline in the U.S. share of global wealth.”
This is pretty shocking news, as mentioned in the opening words: ‘In a stable currency, US GDP is down 25% over the past nine years.’ It was thought that the US had an era of prosperity squeezed in between the dot COM and real estate busts. But that is an illusion.
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PIM of SPAIN
San Pedro de A, Malaga, Spain
San Pedro de A, Malaga, Spain
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