Arnold Kling  

Dollars and Deficits

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Adequacy of Personal Savings... Global Warming...

About the falling dollar, I literally say "So what?"


Taking as given government policy for spending, taxes, and money creation, there is nothing specific that political leaders can contribute to the operation of the foreign exchange markets...Our government has no more business manipulating the value of the dollar than it does manipulating the betting odds on next week's football games.

As a typical American, how does a dramatically lower value of the dollar affect you? It makes certain consumer goods more expensive. It also subtly affects the outlook for employment in different industries. Compared with two years ago, the likelihood has increased slightly that you will work in an industry whose goods and services are traded internationally. By the same token, you are slightly less likely to work in an industry whose goods and services are insulated from international competition.


Chris Dillow makes the point with even greater specificity.

The OECD has estimated that a weak dollar has remarkably little impact on economic activity in the rest of the world. A 22.5 per cent fall in the greenback, it has calculated, would take only 0.1 per cent off euro zone output after five years – though the impact on Japan would be greater.

For Discussion. Who has suffered the most from the decline in the value of the dollar over the past two years?



COMMENTS (9 to date)
C L writes:

Someone like me. I live in England, but my income and assets are exclusively in US dollars because I'm an american citizen working for an american company. As the dollar falls, my income and net work are worth less in exchange for goods and services here, which are all priced in pounds sterling.

Lawrance George Lux writes:

The American people suffer the most from the Dollar depreciation, most notably by making it harder to pay off the Government debt causing the depreciation without domestic inflation. Domestic Wages are losing value, whether the Fed recognizes the hidden Inflation or not, and it takes more taxed labor hours to pay the initial debt aggregation. lgl

Jim Glass writes:
About the falling dollar, I literally say "So what?"

The dollar fell by 50% in the late '80s, and pretty rapidly too.

How many people remember?

William Woodruff writes:

Who has suffered the most from the decline in the value of the dollar over the past two years?

Anyone/entity which holds (US$) dollar denominated assets. A weaker dollar is inflationary.

William

steven writes:

who knows what is the bottom of value inflation?

Darius writes:

Currency depretiation in the middle or long term will mean that foreign governments will seek ways to change reserves from USD to others. If the US will still want to borrow cash by selling US bonds, they will be forced to increase US interest rates, which will definately pressure mortage holders and consumers alike.

Boonton writes:
The American people suffer the most from the Dollar depreciation, most notably by making it harder to pay off the Government debt causing the depreciation without domestic inflation. Domestic Wages are losing value, whether the Fed recognizes the hidden Inflation or not, and it takes more taxed labor hours to pay the initial debt aggregation. lgl

Unlike many developing nations, the US gov'ts debt is demoninated in dollars. So the US gov't just has to raise dollars to pay off its debts, it's the bond holder who is unlucky enough to get paid back in dollars that won't buy as many Euros or Yen as before.

Lawrance George Lux writes:

Boonton,
Believe your analysis is too simplistic. The accumulation of Public debt ensures higher Prices for foreign supplies and materials. Business passes this increase along to the Consumer, until Sales start to be affected. Business starts to cut Production Costs to the Bone; realism states the only truly variable conduit for such Cost-cutting lay in suppression of Wages. Labor faces higher living expenses, higher taxes, and frozen Wages. lgl

Edge writes:

Companies like General Motors, with $300 Billion of debt, are on a knife's edge with this sort of dollar swing.

On the one hand, EBITDA should grow with the falling dollar.

On the other hand, a small change in I might swamp the E. As might a small change in the availability of credit.

Having the world's reserve currency has many benefits, including comparatively easy financing for companies like GM.

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