So it appears the US got the green light to continue with her weak dollar policy.
At the G20 meeting the subject of the falling dollar was discussed but not one mention of it in their communique released after the meeting..and it can't be because no one is worried..as Europe and Japan have been moaning and complaining about it for sometime now.

Instead it seems that the US policy is ... even if it is begrudgingly..being accepted.
And not only does it appear to be accepted but embraced by the major nations of the G20..the communique released did in fact highlight the need for Asian "currency flexibility" Because contrary to all the European conspiracy theories..the policy of neglect on the dollar is the current US admin. giving China pressure not the EU.

Wow..I am happily pleased with this news....this is a major concession for the United States...major.

Do you feel that now that the US dollar's decline or devalue is basically being endorsed and supported by the financial leaders of the world's governments that China will finally get the message?
If not why?

No one cares about this extremely aggressive monetary policy ?

The dollar has fallen 40% in value..and many experts believe it can continue to fall.

I think this is a very brave policy but I think it's intentions are noble. The people in China have to live in state enforced deflation because the Chinese govt. refuses to allow the yuan's value to be determined by the markets..it is said to be devalued even as high as 40%. Not only does this effect our trade deficit in a very unnatural manner..seems larger then it should. We will not be able to bring our budget deficit under control until our trade deficit is too.
So was this all planned out from the start? Did the wizards behind the curtain think if we build up a deficit so looming and so large that the world starts to fret we can then really start to push our belief that China needs to end it's peg to the US dollar and get the major economies of the world to back us up.

I dunno just a guess on my part.

I think China will change her monetary policy..I think she is being given no other option.

It isn't quite as simple as all that. Sure, the dollar's low value hurts anyone who wants to sell to the USA. But a lot of Chinese exporters sell outside the USA in dollars too - I work for a bathroom supplies company that designs products in the UK but outsources the manufacturing to the Far East. Nearly all our suppliers sell to us in dollars. So we can make more money with a low dollar than we otherwise would.

Most importantly, however, the dollar is not just the international conversion currency of choice it's the currency that oil sells in. So while a European or Chinese exporter might find life tough, European and Chinese consumers are laughing because a low dollar means it will be somewhat less expensive to fill up their cars, heat their homes, and so on.

And if the US domestic market still wants to trundle on at a higher rate of growth than there is capacity for home producers to satisfy, it means prices will have to go up, because each dollar will buy less imports.

I think the weak dollar would work better as an arm-twister for Chinese devaluation a lot better if the USA was the only game in town as far as consumer markets are concerned.

I can't help but wonder if it won't backfire, leaving you with an even bigger defecit and a world to busy getting on with their own growth and investment to want to throw good money after bad by putting yet more cash into the USA ever-expanding debt.

Don't forget, the Japanese have been pretty quiet as an economic powerhouse for over a decade now because their economy was founded on sand - their property market was at the foundation of everything they did, and when that well ran dry they had to draw their horns in dramatically. They're still the second-largest economy, but the growth rate slowed up hugely. Debt-fuelled spending (both at government and individual levels) seems to have been the powerhouse of the American economy since Bush came in. If nobody wants to lend to America any more, it doesn't much matter what level the dollar drops to.

My point is that this strategy may work, but it's riskier for America herself than anybody seems willing to admit.

It is that simple..the yuan is pegged to the US dollar so every time we slip they have to furiously buy buy buy greenbacks. China has a special relationship with the dollar and her fall directly effects them...in a very immense way.


Yet in regards to China's own currency the US dollar is the only game in town.



What world is getting on with their own growth right now? Europe surely is not. Why is Europe doing so little to encourage economic growth? And Japan is currently experiencing a export only recovery... a low dollar adversely effects her own economic health.

IMF warn on slowing global growth

If we fail this will be a major destabilization of the GLOBAL economy..it is not just America's problem.

China now currently supports her monetary policy against the world..the G20 confirmed this..the US dollar must fall and China must play the game fair.

Okay, Bucket. I stand corrected, and the cheap dollar-valued oil that the EU will be benefitting from isn't germane to the thread anyway.

Which leaves me needing clarification - what message is China meant to be getting? Why is the yuan shadowing the dollar a bad thing, and why is passive devaluation of the dollar going to change this policy? I don't get it (I've never stuied economics - which might explain some of the errors in my last post )

Well China pegs her dollar below the US dollar. She maintains an exchange rate of something like 8.00 yuan to every US dollar. America mostly dislikes this policy because it gives China an unfair advantage trade wise by artificial keeping the price of her products down.

It also causes a great disparity in the trade between our two nations.

I will find you a good article to read ok

Dollar/ Euro
2004



Is this weak dollar being a bit overblown?

Not quite, but it has fallen substantially.

Hugo

The US dollar has dropped by 20 percent since 2001.

http://www.bloomberg.com/apps/news?pid=100...PZpKEQ&refer=us


China artificially deflates her currency based on the US dollar. In affect of the US dollar value falling in the global economy China's is as well and even more so because China keeps the value of the Yuan much lower than the US dollar. So if they want to continue their monetary policy they will lose big time because their capital will decrease or inflation will greatly increase causing a (potentially) massive economic downturn. I cant imagine "the wizards behind the curtian" had this pre-planned because it works both ways though China will be hurt alot more than the US.

[quote=Vampiel,Nov 23 2004, 02:26 PM]
[quote="Bucket"]The dollar has fallen 40% in value..and many experts believe it can continue to fall.
[/quote]

Not quite, but it has fallen substantially.

Hugo

The US dollar has dropped by 20 percent since 2001.

http://www.bloomberg.com/apps/news?pid=100...PZpKEQ&refer=us
[quote]The dollar has declined 20 percent on the Federal Reserve's Trade-Weighted Major Currency Dollar Index since Bush took office in January 2001.
[/quote]

Yes, since 2001. Data fot this year suggests the dollar is stabilizing despite our efforts to weaken the dollar. The fact is Europe's GDP growth is pretty anemic at present which can quite likely lead to a stronger dollar. My prediction is that the dollar has about bottomed out, despite our irresponsible fiscal policy.

Really, all indicators that you have seen have shown that it has "stabilized" even though it was at a 9 month low this month? Perhaps if you would like it to be stable at a low value which make's sense for the topic of this thread.



I dont believe that this was the intention of the Administration. The result of the weak dollar is mainly due to factors such as the collapse of the dotcom market, the war in Iraq, Enron, and Sept. 11th all of which impacted consumer confidence. The deficit is only a small contributor and that alone is not enough to weaken the dollar much.

Though here's an interesting little bit of information.

Am a little confused about who said what with the tags all screwy.


Vampiel it is a pretty well accepted idea that dollar neglect is the current admin's monetary policy....why else would nothing be said about it after the G20 meeting? If it was a concern of the US govt they would have used this opportunity to address it..the exact opposite occurred and then Mr. Greenspan came out and basically supported a weaker dollar too.
It appears to be the latest means to get the US deficits..as in both of them (Americans have a thing for twins huh?) under control. Before Greenspan used to tell us how having a deficit was like no big deal..just chill..now all of a sudden our govt goes on this Blitzkrieg talking about the dollar and how we only wish the markets would be more favorable to us..poor poor us at the mercy of a free system..and Mr. Greenspan in Europe acting like the natives with this new doom and gloom talk in regards to the US deficit. So was this all coordinated?

And 20% that is the Federal Reserve's Trade-Weighted Major Currency Dollar Index...meaning they avg it out. Because I know it is more than 20% to the Euro and it is easily in the 30% range against the CHF too.

40% was off tho..so sorry...just a number stuck in my head for some reason...maybe it is what it is believed to decline to..I don't know.

Hugo...I have seen nothing showing, indicating or even supporting the idea that the dollar has bottomed out...could you perhaps provide where you read this or how you came to this conclusion?

EDITED TO ADD

Julian here is one article on this subject..I was trying to find you something else I read a while back but google is not cooperating. I will look for it later.

http://news.ft.com/cms/s/8b9cb19e-3cf7-11d...000e2511c8.html <--China's newest reaction to the pressure.

First I am trying to remember the name of the investment theory that any future predictable weakness, or strength, of a stock or currency is already reflected in it's current price. If I was as confident as some people on this board are that the dollar is certain to decline more I would be investing in foreign currency.

From x-rates.com reasons the dollar may go up




The US economy seems to be picking up. We are reducing monetary growth. The dollar has dropped less than 3% this year; a sign of stabilization. I would not put all my wealth in Euros just yet.

I love the internet...a little info on the theory I could not recall the name of. From www.alvinhan.com

Bucket you are right. They have no intention of intervening in the short term.

http://www.turkishpress.com/news.asp?ID=34282



I found an exellent article on this subject. A weak dollar is in the best interest of the US in the short term at the expense of the EU primarily.

http://www.businessweek.com/bwdaily/dnflas..._3507_db039.htm



Something of note that China doesnt need to let it's currency float until 2008, however the conclusion is assuming that China can handle the injection of inflation from a low US dollar. And since their currency has a much lower value they will feel the inflation much more than the US.

http://news.bbc.co.uk/2/hi/business/3713351.stm



China is feeling the pressure. This is simply genius.

I love China's response.

http://news.ft.com/cms/s/8b9cb19e-3cf7-11d...000e2511c8.html



Basically stating "give up and sell us your advanced technology"

I heard today, (NPR) that the real problem is the billions in reserves that Russia, and more so China and Japan hold in US dollars declining in value.
Although (supposedly) China knows that dumping dollars will cause some global economic crisis and are restraining, they are not happy about having to swallow the losses and want us to get our fiscal policy under control.

However Russia, who holds less reserves is considering such a dump of dollars in favor of the Euro as a survival measure, they claim good banking.

Accordingly, if we were another country, such as Argentina, this situation would signal impending crisis, but we are being given basically the benefit of the doubt at this point.

I am new at economics so I present this as what I heard on the radio for additional debate. It does seem to me that a declining dollar means either higher interest rates and/or inflation, isnt that the way it works?

[QUOTE]Asked whether there had been any discussion on intervention, Eichel said: "The term you just used did not come up at all."
[QUOTE]

This language suggests not making the discussion public, possibly not to send the markets haywire. My feeling is that the deficit IS a problem. I heard we were 'Reprimanded' by China today, saying that the US should save more and borrow less.

That is correct. When the value of the dollar declines that means we have to simply spend more dollars to import goods because the dollar is not as valuable which creates inflation. Either that or the company that is selling us the goods take's a hit on profits (which is by and large what is happening now and why inflation in the US is still relatively under control).

It is also good for exports. Since the dollar value is lower it actually becomes cheaper to manufacturer products in the US.




One thing you can do to increase the value of the dollar is to raise the federal interest rate. You have to (slowly) raise interest rate's because they make more money off of the loans which causes the demand for the dollar to increase because it becomes a more valuable investment (hence the higher interest rate brings you back better returns).



Russia is not going anywhere because they know the Europeans are in more of a crisis than we are. The dollar will surely rise back up but probably not for another few years.



China can complain all they want they are the ones with the unfair policy and if they want to do something about it they will have to stop their unfair practice which will be a victory for US.

The weak dollar also helps to curb outsourcing.

Thanks for the link, bucket. That helped quite a bit.

Here's another link by Time Magazine's Michael Elliott. His contention is that, far from being a good thing, the dollar's devaluation is evidence of America's economic weakness. Having read up a bit more, including the article you posted and the text of Alan Greenspan's recent European speech (for a speech about the Euro, he spent a lot of time talking about the dollar! , I have to say I tend to agree. China is under pressure to let their currency (which, it seems isn't called the yuan any more, but the renminbi. ) find a natural level, but they're in no special hurry. And (from this article) it's only really the USA that has a huge trade defecit with China - the rest of the world is more or less in balance. Rather than trying to tell the Chinese what to do, shouldn't your government be trying to wean American consumers off their addiction to cheap Chinese goods baought on credit? Oops - I forgot, the only people in the world that the American government is not allowed to boss around are Americans! (Mostly joking!).

Another article, from Forbes Magazine, concentrates on the downside for the Euro, Japanese yen and Korean won, and their respective economies. The slide in the dollar, and in the Asian currencies that are pegged to it, is hurting exporters in these countries even more than those in the USA, since their currencies are not pegged to Euros, Yen or Won. Since all of these economies are far more geared towards export/import trade than the US, and the recoveries in Japan & Europe are still fragile, this doesn't solve the problem between the USA and China, it just diverts it somwhere else.

I still can't help but think that unless the USA takes serious and active steps to turn around the trade and federal defecits, all the financial engineering in the world is just rearranging the deckchairs on the Titanic. Worse than that, it's just spreading the misery to America's competitors. It's as if the policy is not to be healthier and fitter than anyone else, but to make sure you can cough over as many people as possible so at least you aren't the sickest person in town.

Heyas Julian

The Chinese yuan in called the yuan too..they call it by both names..I always say yuan easier to remember.

Bit confused really as to why you find the first article..the Time one..explains how the dollar's devaluation is evidence of America's economic weakness. ? Why did you gain this opinion form this article?

Also the Chinese parting with their dollars...and wanting to exchange them for yuan ..well they do this mostly in Chinese black market banks and I can't see why the Chinese govt. would be too happy about this..not because of the black market factor but because the less dollars the Chinese populace purchases the more the Chinese govt has to purchase.

I have even read that the black market banks have an even lower exchange rate for the yuan..but how can they lose!? It is said their currency is possibly devalued at 40% it can only go up, up, up.

We have talked about the weak dollar in this thread alot but not about the trade deficit. This article does bring up some good points about the trade deficit to consider.

http://www.foxnews.com/story/0,2933,139726,00.html

I can't say I'm a big admirer of Fox News, mainly because Murdoch publishes in Britain too and intellectual rigour isn't exactly what he's famous for...try reading the Sun! (Interestingly Murdoch news in the UK is also overtly patriotic too. Rule Brittania and all that).




Well, firstly the whole intellectual property argument is dodgy. As the author himself says:
Invisible huh? Thats unusual. You would have thought that if IP and design were such large segments of the US economy, then they WOULDN'T be invisible. What the author is saying is 'You can't measure it, but its there'. Sure....but supposing you can't measure it because it aint there?



Ummmmmmm...no. US exports $350 and then imports something worth $1000 then the US loses $650. In the example above, the profit is $650 - going to Toshiba in Japan. Maths is maths.



Yes, the most widely quoted argument for 'the deficit doesn't matter'. If Japan reinvested the dollars back into the US in the form of long term investment, then the US would be the overall winner, as that Japanese investment would add to the US economy. However, this isn't happening, the money is NOT being used to generate returns from the US economy, its being used to keep the Yen, Yuan and whatever else low.

Question then, Ptarmigan. I'm certainly no economist, but if the Chinese and Japanese want to keep their currency low to offer themselves a trade advantage, why wouldn't we want to do the same due to our massive trade deficit?

Don't worry, I'm not an economist either..I'm trying to work it out as I go along!

1) The dollar is the world's reserve currency. In other words, countries like to convert (buy) dollars from the US to use as a store of value in their central banks. If the dollar falls to low too quickly, then the value of dollar holdings also falls, making the dollar less attractive as a reserve currency.

2) If the dollar falls in value, then assets denominated in dollars are less appealing to investors, so the lower the dollar falls, the less likely people are to invest in dollar assets - i.e. shares in US companies, treasury loans. An investor in (say) shares has to balance the expected growth in share value, against the erosion in value of the money it is held in. Unfortunately whilst the US has a very strong economy, currently returns from foreign direct investing in European or Japanese assets offers higher returns (although over the last decade the reverse has been true). Unless this changes, assets in either the EU or Japanese economic zone look increasingly favourable against the dollar and investment flows switch away from the US.

(Although you could say that large amounts of foreign investment IS going into America, as central banks buy up dollars, this money isn't being invested in the long term, it's being spent on imports by consumers.)

Ugh, brain overheating, going away to read more articles...

Because the US is a consumer nation. Low currency policies only favour countries with low debt and trade surpluses. Canada has benefitted greatly by a low dollar policy. A higher dollar results in a more expensive buy-back of debt bonds, higher inflation and interest rates. These interest rates will likely drive the dollar back. The US must believe that China is a monkey on its back in order to be following this plan.

I believe the US does feel China is a monkey on it's back.

Yet I disagree with much that is being said about the US economy. In regards to Japan investment a 1-2% interest rate an investor receives in the US still is better than they see in Japan. Also the idea the US is merely a consumer nation or that the fall of the dollar makes assets less appealing...What? Excuse me?

I am currently involved in a project in a little town I love that is undergoing some immense redevelopment..it is just unbelievable..and the amount of the return they are going to receive on these properties is mind boggling. The companies involved in these projects are all massive international corps...like ING and Bovis. Me thinks perhaps a few smart folks in Europe have been taking their Euros and doing a little real estate shopping here in the US. Imagine the bargain they are all receiving with the dollar as low as it is to the Euro.

I do read the Sun, thanks for the suggestion though (good news outlet).



Well just try finding it in government stat's.



I can see how you came to this conclusion but apparently you misunderstand how the system works. He is talking about the profit margin. The production cost of a CD costs maybe $1, sold at $50. The CPU cost's around $49 to produce which is sold at $300. Therefore the profit from the two is around $300. However the laptop is sold to the US at $650 (plus the $350 for the CPU and OS) which is were the $650 deficit comes into play. But it cost's Japan around $600 to produce the rest of the components. Therefore the profit made by US companies was around $300 but Japan only made a $50 profit.



The point being is that the Japanese company now hold's US dollars and has to convert them OR reinvest them in the US. In other words the stronger the US dollar the more money they make so it's in their best interest to keep the US economy rolling which is the primary reason US inflation is relatively under control.

http://www.businessweek.com/bwdaily/dnflas..._3507_db039.htm

It matters not however. What will drive the inflation will be the cost of things like lumber and natural gas. As the US's buying power diminishes, naturally prices will go up. The manufacturers and suppliers cannot take the 25% hit. If they kept prices artificially low, then they would be hit with dumping levies.

US buying power only diminishes to other nations. As long as the economy keeps up with the inflation, it's all the same in the US. Lumber and natural gas come from the within the US. Why do you think that inflation is not currently out of control with the value of the dollar as low as it is? It's because other nation's are taking a hit on their profit margin (if this continues it's bad for the US as well).