Sjoerd muttered....


"Olivers" schreef in bericht
...
EvelynVogtGamble(Divamanque) muttered....



Well, we enjoyed favorable exchange rates for a long, long time -
when the dollar keeps dropping in value, perhaps we should do
something about our trade deficits? (I admit my recent trip to
Vienna cost me considerably more - in US currency - than the one in
2000, but what can you expect, with our current administration?)


Quick course in Economics, Ev, the part you must have missed during
your last and lamented miseducation.....

For trade deficits, a dropping dollar makes US goods cheaper and
cheaper abroad, quickly increasing US exports (although we now
produce less exportable goods, and have not been able to produce cars
attractive to foreign purchasers).

Meanwhile, the dropping dollar causes folks to quit buying foreign
goods which begin to cost more and more (works for everything but
oil). Imports drop, the trade deficit decreases, and the dollar
strengthens.

Actually, the US dollar had become far over-valued as a number of
foreign economies had slowed/declined, and the current "adjustment"
down
represents
a reality bite for US travelers abraod, the dollar being worth closer
to what it ought to be. Sadly, for US consumers, one thing which
would cause the dollar to jump in value would be a quick increase in
US interest rates causing a flood of foreign investors to invest in
US governmental and commercial debt instruments. Immediately, US
consumers would be paying
more
for personal debt service and the interest-increase would shoe up in
price increases.

Currently, vehicles sales remain relatively high because the cost of
credit
is so low. Even imports continue to sell, because their cost of
production
is reflected in dollar values from months ago when their materials
and components were purchased, and the financing/debt costs to the US
consumer are the same whether he buys a foreign made auto or a
domestic car (and many "furrin" cars are assempled in the US (with
many US comonents).

For decades, the US, with little competition from tiny postWWII
foreign economies essentially "fixed" the value of the US dollar,
with the USTreasury and banks ever able to buy and sell funds in
amounts large enough to stabilize and fluctuation overnight. While
still the world's largest economy (by any measure or standard), the
US is no longer so dominant that it can almost effortlessly keep the
yen or the pund/franc/mark and now Euro from going up (or even down).

So, while cheap dollars make your trip to Europe expensive, cheap
dollars actually stimulate production and employment in several large
segments of the US economy (but accomplish quirky side effects such
as grave damage to a fragile Mexican economy for which the two
largest providers of funds are money sent home by Mexicans, legal and
illegal, working in the US (whose dollars will no longer buy as much)
and US tourism (declining as tickeys, hotel rooms or meals go up).
That's why Mexico, no matter the dollar's movement, does everything
possible to hold the peso in a stable relationship to it.

The over=priced dollar of the later Clinton years wasa sure-fire
inescapable predictor of "things to come" to almost every
international economist (and the pages of dozens of economic
publications, 1995-2000, were filled with dire projections). Some
folks simply didn't read (and never have).

That's how currency traders make money. Most of them read.


You forget one important fact: many currencies of important trade
partners of the USA in Asia are officially or in practice linked to
the US$. Changes in the GBP or EUR value expressed in US$ do not have
much impact on bilateral trade between the USA and these very
important trading partners in Asia.

....But Evelyn was concerned with her dollars and their value in Europe
(where the Euro as a single - almost - unitary curency makes it much harder
for the US Federal Reserve Bank to act by "playing off" US dollars and
multiple Eurpean currencies aginst each other.

You're right about the minimal effect on much Asian and substantial South
American trade (where local currencies attempt a dollar fix - or actually
are dollar-based). On the other hand, a net result will be that PCs from
Dell, Gateway and HP/Compaq, all packed with Windows OS become cheaper in
Europe, their assembly costs in Asia "dollar-based". Dell's selling a
quite well equipped up to date system (monitor, printer, and all the basic
bells and whistles) for $500 & less. Convert that to Euros, and it's
"cheap".

TMO