Does The Weaker Dollar Worry Anyone?

Published on November 26, 2004 By Genghis Hank In Current Events

Look, I don’t claim to be an expert at economics. On a good day I can barely spell it correctly without a spellchecker. But I see all these different things happening that sound troubling and they have me raising my eyebrow. Consider:

Gold reached a 16 year high breaking $450 an ounce, and is expected to go higher.

Oil is still over $48 a barrel, just coming off it’s all time high.

Currency markets have the Dollar lower against all the major currencies.

OK, so interest rates haven’t gone up very far yet, but don’t these other things sound a lot like we are about to be hit with inflation?

What’s your take on it?

Comments (Page 1)

Danny Bassette

on Nov 26, 2004

I'm not an economics expert either, but my thinking is that the dollar is going to get weaker so long as we have a trade deficit and large national debt. As the dollar weakens the deficit should shrink, as for the debt, well that's a different story. So those numbers you mentioned, I would expect them to go up more before they go down.

iamheather

on Nov 26, 2004

Yes, Genghis, these figures worry me as well. I am no economist, but I pray Alan Greenspan can keep up.

kingbee

on Nov 26, 2004

over the past 24 years, a person coulda made a lotta money buyin precious metals prior to each new republican administration

webnavigator

on Nov 26, 2004

If this is about the American dollar .......it doesnt seem to hurt us Canadians up here

.....just helps us a bit with the inter-country comercialism etc buying/selling.I think

cactoblasta

on Nov 26, 2004

It's largely because you guys can't hack reducing spending and won't stop borrowing money. The US is beginning to be seen as a terrible credit risk so lots of investors are pulling out of the dollar and putting their money into the euro - it's a much safer currency because the European governments are more responsible with their spending.

kingbee

on Nov 26, 2004

you guys can't hack reducing spending

yeah them damn liberals spend dollars like they were political capital hahahaah. bush promised a bunch more to colombia the other day and we we didnt even get a free kilo outta the deal

cactoblasta

on Nov 26, 2004

yeah them damn liberals spend dollars like they were political capital hahahaah

Not just the liberals - the republicans and the democrats have both increased spending and reduced taxes, which has only increased the problems of inflation.

Solitair

on Nov 26, 2004

In the short term the weak dollar will help export trade. The problem is that the weak dollar will also lead to instability and a flow of investment out of the country to more stably abodes (such as the Euro or Yen). Weak dollar also makes imported goods and raw materials expensive. Fine for a few months as you eat into stock piles, but bad in the long term as it increases the cost of your products therefore removing the short term export gain and leaving the entire economy weaker. It's a balancing act as to when the gain in exports is off set by weakness and outflow of capital. You already have some major countries like Russia now swapping more of their foreign currency into Euros for stability. If they were then to decide to trade their oil in Euros the dollar would be in big trouble. They have hinted they may do this if most of their foreign currency was in Euros and if the dollar continued to slide.

On the positive side it does make our petrol much cheaper.

Paul.

Genghis Hank

on Nov 26, 2004

Thank you all for your comments

It "should" be good for US businesses to help with the trade deficit making our products cheaper overseas. The problem I see is that other countries are much more interested in selling thier products here. I think for the average person (or to be completly egotistical, for me), it is about to get much more expensive to live.

Reply By: iamheather Posted: Friday, November 26, 2004
Yes, Genghis, these figures worry me as well. I am no economist, but I pray Alan Greenspan can keep up.

Me too, but there's only so many levers and buttons he can push.

Reply By: kingbee Posted: Friday, November 26, 2004
over the past 24 years, a person coulda made a lotta money buyin precious metals prior to each new republican administration

That's an interesting observation kingbee. At first thought., you would think that Republicans would favor strong dollars. Guess they are better diversified than everyone else.

Reply By: Solitair Posted: Friday, November 26, 2004
In the short term the weak dollar will help export trade. The problem is that the weak dollar will also lead to instability and a flow of investment out of the country to more stably abodes (such as the Euro or Yen).

I think we might be seeing a shift in power happening. The USA's global power, as perhaps any country's power, always depended more on economics than on military strength. A strong military is more a product of a strong economy than a cause of one.

Frightlever

on Nov 26, 2004

It "should" be good for US businesses to help with the trade deficit making our products cheaper overseas.

Nice theory, until you look at China, whose exchange rate is tied to the dollar - so even if it becomes cheaper to buy US exports it's still as cheap to buy Chinese imports. You want to play that game for any length of time and the guys with the controlled economy (uh, the Chinese) are going to win.

Pre Bush you had a 5 trillion surplus, now you've got a 3 trillion deficit. Should you be worried? No, unless you plan on still living in the US.

Genghis Hank

on Nov 27, 2004

Reply By: Frightlever Posted: Friday, November 26, 2004
It "should" be good for US businesses to help with the trade deficit making our products cheaper overseas.

Nice theory, until you look at China, whose exchange rate is tied to the dollar - so even if it becomes cheaper to buy US exports it's still as cheap to buy Chinese imports. You want to play that game for any length of time and the guys with the controlled economy (uh, the Chinese) are going to win.

I think that means you agree with me...

Just curious though, how does China keep it's rate tied exactly to the US $? I mean, if two people traded currency, how can China intervene and fix the price? They can influence it by buying and selling dollars at a rate of their choosing for a while, but wouldn't that eventually catch up to their economy too? And if the dollar becomes too weak, wouldn't they eventually be forced to break off from it so they can afford to buy things like oil and tech?

LlamaLamp

on Nov 28, 2004

Actually, I find myself wondering if this has to do with our huge turn from a goods-producing type of economy to a service-producing type of economy. Is our dollar becoming weaker because we produce nothing for ourselves? Would other countries see us as a more reliable investment if we ourselves became self-reliant once more? Regardless, I still think that it would be a smart idea for average American citizens to learn to do more for themselves, because with the way our economy is going, I forsee cost of living going through the roof, and things like making your own clothes or avoiding eating out becoming real necessities. Hell, we may even need to start gardens. Not that learning how to do for yourself is at all a bad thing...but I fear for us when the day comes that we completely can't make do for ourselves. --LL

Solitair

on Nov 29, 2004

Actually, some people feel that the Chinese peg to the dollar is also weakening the US dollar as more and more countries are purposely trading with China in Yen or Euros to get better exchange rates. This leads to further outflow of currency from dollars, further weakening and better exchange rates for toehr currency against the RMB. Of course this could backfire against the Chinese as their non US imports get more expensive. Their non US exports will get cheaper though, but they'll loose competitiveness to other south east Asian economies who can afford cheaper imports.

Paul.

sunwukong

on Nov 29, 2004

FWIW the Chinese have finally removed the peg of the RMB to the dollar. But, to feed the cynics, this came at the same time the Chinese government has to worry about their economy overheating ...

sunwukong

on Nov 29, 2004

Btw, there are a lot of economies (e.g., Japan) who've been playing the dollar game. Unlike China, countries with reserves (i.e., money) have been doing things like buying up the dollar in order to inflate its price.

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