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I have an embarrassing confession to make: I like to look at www.RedState.com.
It’s the entertainment value that attracts me. Yes, it is a disgustingly perverse hobby, but as our beloved Bill Clinton used to say, “I don’t inhale.”
One of the RedState bloggers calls himself Dan Perrin, although I’m convinced that his real name is Chicken Little. Here’s a sampling of his recent blogs:
The Dollar is the New Peso, Sept. 29, 2009
The World Moves Against the Dollar, Oct. 5, 2009
The Record Deficit and Dollar Meltdown, Oct. 8, 2009
The Dems Are Killing the Dollar, Oct. 10, 2009
According to Chicken Little, the US dollar is doomed, and it’s all President Obama’s fault.
Comparing the dollar to the euro, here are a couple of points to keep in mind:
- During George W. Bush’s eight year reign of error, the dollar lost 30% of its value, falling from 1.07 euro to 0.75 euro.
- The dollar’s current value is low (0.68 euro), but it’s still 8% higher than its all-time low in April, 2008 (0.63 euro).
May I suggest that it’s a bit premature to predict the dollar’s demise and to pin it all on Obama. As former Chinese Premier Zhou Enlai purportedly replied when asked his opinion of the French Revolution, “It is too early to say.”
Get back to me again in seven or eight years, Chicken Little.
26 Comments
I don’t ever agree with the Republicans, but on the dollar they have reason to worry. When the day comes we are so much in debt that no one wants them, we are basically doomed. That day is closing because no one has even suggested a way to pay for our future obligations. The unfunded liabilities are around 32 trillion I heard, on top of the National Debt, and forgetting the deficits. They amount to our whole GDP in past good years, for ten to twelve years. In those ten to twelve years the debt, liabilities, and what it takes to keep us won’t stop. That means we are unsustainable as a Nation, no matter how you cut it. It won’t matter what the dollar is worth, when all thsi comes to fruition. Throw in an oil crisis, or something else and we will be the beggers of the world, instead of a Super Power.
Almost every major recession in the last 100+ years (internationally) has been broken on the back of an export boom. Worldwide demand is down, which makes this a very difficult time to be selling lots of goods to foreign demand. Having an overvalued currency makes that even harder.
The correct response to this is, “Are you planning a lot of trips to Europe? No? Then a weak Dollar might well get you your job back.”
Exactly, a falling dollar is not necessarily a bad thing. A number of economists, Willem Buiter is one that comes to mind, have written that a rise in exports is probably the only way to get out of this recession. And a falling dollar makes our exports less expensive in other countries.
Dean Baker has been writing for years about the failure of the high dollar policy that Robert Rubin implemented in the late 90′s. We’ve had an overvalued dollar for some time because of Treasury policy, not budget deficits. The result has been massive trade deficits and lost jobs.
Please tell me you have links!
I don’t know where the author got their info, but it’s accurate. The Canadian dollar (aka loonie) went from 62¢ US to over 90¢ during the Bush administration, so 30% is a good figure. There are graphs at this site, but they only go back a year. Link is for USD vs. Euro.
There are many, many places on the Internet that have exchange rate information. Yahoo Financials and Bloomberg are perhaps among the best known. I got my figures from this site:
http://www.oanda.com/convert/fxhistory
Most people who live in the USA are generally unaware of swings in the value of the US dollar, but it has been dramatic during the past 10 years.
For example, Americans who were complaining about the rising oil prices, and the high price of gasoline, were generally unaware that what they were really complaining about was the weakening dollar. Those of us living in Europe have seen gasoline prices rise somewhat, but nowhere near like what happened in the USA.
I will say I worry bout the Dollar and think it strengthened by fixing our economy if we get people jobs they will spend we are a consumer economy the world depends on us to buy their stuff and keep their economies going.
What is the GOP plan to save the Dollar more tax cuts?
I try to swing by RedState just to get the perspective from time to time, but have to admit that I have less patience by the week.
Good for you for checking on it; that’s the only way to stay abreast of what’s percolating.
As for the dollar, we’re actually really screwed.
But personally, I’m more likely to read Robert Reich, or Financial Times, or Economist, or other sources to ferret out why.
George Soros gave the best explanation of why the move away from the dollar will be a huge shift, permanently. But I’m sure that the RedState folks would rather eat raw onions and walk over embers barefoot than read Soros’s wisdom.
Which keeps them locked in their ignorance.
Sad, really.
All I need to know I the price of precious metals to know what’s happening to the dollar.
When Bush “took” office in 200, gold was around $350.00 an ounce; today it’s hovering around $1050.00. Likewise silver was around $4.50 and ounce and now it’s near $20.00.
So, you figure it out. It’s a good idea to watch the precious metals markets, they tell a clearer tale than most of the economists do; or Wall Street, that cancer on the body public, does……..
A pretty good chunk of that price inflation in precious metals is the result of wrongly considering gold to be an intrinsically safe value-store in uncertain times; ie. a lot of people who don’t know any better throwing big gobs of their remaining money in gold. In short, it’s essentially a speculative bubble.
That’s good shit right there, Nathan. There are many who think that the Chinese are too vested in the dollar to toss $2t down the shitter. While $2t is a chunk of change, China is big enough to eat it if that becomes the prudent long term play.
There are also those who believe that so long as institutional investors stay with the dollar, then it will not see a crisis of confidence. But I think that it is precarious enough, the fed is going to enough gymnastics to keep demand constant, that it would not take much to pull the legs out from under it as reserve currency. Smaller scale speculators could provide the push.
The issue of a strong versus weak dollar are a distraction. If the dollar is reduced to just another currency, then the US as we know it is toast.
The dollar as an international traded currency and as a debt instrument is the closest thing we have to an investment on “US futures.”
Would you bet your nest egg on US futures right now if you did not live here?
The dollar is our domestic currency, but it plays a totally different role worldwide. The only reason why we have a higher standard of living is because we get to print dollars and other nations accept them for exchange, and they in turn reinvest their dollar exchanges into US treasuries, otherwise, they’d need to raise the value of their currency by selling dollars, which would make their exports less attractive.
Once another investment proves more attractive, more lucrative than the dollar, we are going to see a run on treasuries, we’re already beginning to see that, where the fed is having to take extraordinary steps to keep up the illusion of demand for US debt. If there is falling demand for debt, then the fed will need to raise interest rates to make debt more attractive to investors whose attention is distracted by more lucrative investments in markets which are recovering faster than the US. That will make US exports, that there are any, less attractive and will lower house values even faster, throwing more into foreclosure.
There are no good answers. The chickens are coming home to roost after 30 years of “free market” economics. Fasten your seatbelt, this is the end of the “middle wave” speculative bubble that started with Reagan.
One of my first diary’s here was essentially on this topic, The Race to Recovery may Unearth the Next Reserve Currency.
I think my name in the comments still shows up as ImperialFlow.
If the dollar ceases to be the world reserve currency, either because of the rise of an alternative or the debasement of the currency due to a crisis of confidence, then the standard of living in the US will dwindle.
I’d imagine martial law would soon follow.
I think you assert too much dilapidation. Quite honestly, a removal of the Dollar as the de fact world reserve currency is probably as advantageous as it is fundamentally necessary, and the reasons for both overlap.
The current condition incentivizes incredibly perverse dysfunctional capital and trade markets. We’ve been able to shirk financial prudence for a long time because of this arrangement, but we’re still a very, very advanced economy with a lot of productive capacity. Most of what’s broken in the U.S. are our political institutions which fundamentally fail to recognize how advanced economies function, and the duress it places on segments of society in transition which no longer have an immediately useful economic function.
All in my opinion; of course. I describe this as the paradox created by the inherent conflict in our micro and macro economic objectives. Fleshed out in abstract here: Reevaluating Unemployment: Is Progress Destabilizing our Economy?
Instead of gold, I ran to RMB; because at the moment it’s essentially directly interchangeable with Dollars, save for a narrow band of variance on their peg, and if they decide to unpeg from the Dollar they should see a precipitous rise in the value of their currency. It’s a gamble, but it’s also money that I don’t need immediately, and it’s still essentially liquid.
But there is an incentive for RMB to stay cheap so that China can export, no export, no growth.
Nightmare scenario for China: RMB rising and dollar reserves liquidated due to currency crash.
I believe you overestimate the US domestic industrial capacity and underestimate the damage done to it intentionally by those who have no time for a US middle class. Demolishing the middle class has stoked demand for cheap crap instead of quality products with value added and domestic production has changed to reflect that. That’s no basis for a sustainable, thriving economy.
For the past 30 years, finance has provided returns approaching 30% over time which has sucked capital from industrial production which can maybe return 8% over time and that has taken its toll.
The fact is that the dollar will face the double whammy of trying to unwind the trillions in stimulus domestically as well as an unsustainable debt load threatening the role as reserve currency. This is the second shoe to drop marking the end of the Cold War, and I fear that it will be as cushioned as the fall of the Soviet Union was.
Right now, we’re at the beginning of the beginning of the end for the dollar.
Brad Setser, at CFR at the time, was doing really insightful and deep research on China’s initiative to generate domestic demand. The short of it is, China isn’t waiting around for U.S. demand to pick up, and unlike other exporters they probably don’t need to. From 2005 through 2008 China had been placing artificial controls on domestic demand to keep pumping their export markets, but the key thing to take away is the artificial part. Their reliance on export growth was intention, and was specifically limiting domestic demand on purpose, and part of the reason they haven’t seen the doldrums like Japan and Germany seem plausibly explained by this underlying current of domestic demand that they’ve essentially just taken the cap off of.
To which my response, noted earlier, is, “Thank God.” The crazy train that started with Bretton Woods, and derailed spectacularly at the Nixon Shock can finally be put to end, and a more balanced and stable system of international exchange can take it’s place.
“Reevaluating Unemployment: Is Progress Destabilizing our Economy?”
Interesting, but we could all go on about how to fundamentally restructure the economy for sustainability and sanity, that piece lies on the other side of the reality tracks right now, as it would mean accepting that the surplus needs to be distributed to those for whom there is no economically productive activity. That IS communism, and I don’t see a path from here to there.
I think that there is enough work in providing for basic human needs to go around for all. But that might mean we should take a page from the feudal book, where folks worked 1/2 time to cover their needs and were able to enjoy leisure time for the 180 holidays on the books at the time. Workers of the world, relax!
This, of course, begs the question of perpetual growth, both economic and population.
Is there a middle ground for the US at home regarding the demise of the greenback as the global exchange currency between “Thank Dog” and martial law?
I’m not sure what you mean by middle-ground. I mean we’re not talking failed state territory here, so the idea of martial law is essentially hyperbole. There’s something really important to recognize about the U.S. when we start worrying about something like a sovereign debt crisis or rapid inflation, we have absurdly low taxes amongst developed nations, and our creditors lend to us in our own currency.
With respect to the demise of the Dollar as the de facto reserve currency; that’s why I think it’s important that we actively engage major global economies in establishing a new system (like China’s proposed basket of currencies approach), rather than circle our wagons in a futile attempt at preserving hegemony for just a moment longer. There will absolutely be transitional friction, but the more controlled it is; the better. If we continue to ignore the inevitable, and just let it come unhinged, that’s when irrational behavior gets us into a lot of trouble.
What happens when petroleum must be purchased with hard currency?
Oooh, I read Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4x9dIJsPn4U
Dollar Reaches Breaking Point as Banks Shift Reserves
By Ye Xie and Anchalee Worrachate
Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
You mean when it has to be purchased on some other currency, like the Euro, and our currency is sufficiently weak against it?
One would hope it might finally mobilize our, currently massively underutilized, productive capacity to marginalize our consumer and commercial reliance on petrochemicals. If it doesn’t, then it would be like the 70′s, wherein at a time when the economy is struggling we’re hit with significant price shocks on necessary commodities. Which will be pretty unpleasant, but again these are problems we can deal with, we just don’t. We’re not for a lack of resources, or studied analysis, we’re for a lack of will and leadership.
The problem with this is that, like we learned with the Soviet Union 20 years ago, human beings are very poor at transition strategies, even when proceeding at speed into the wall.
The social shock of an effective 5 times increase in the price of gasoline and heating oil will result in serious disruption and unrest. Not only will the dollar buy less, but oil is on the other side of the peak of production and will only get more expensive to recover. The economic shock will knock what’s left of the economy on its ass.
It is easier, cheaper and more profitable for the elites to crack down on civil liberties than to plan for a sane transition. But we really have no clue as to what will happen to the US economy once the dollar loses reserve currency status and has to perform with us reliant on its performance, our performance. The other interesting matter will be what will happen when the US is unable to maintain the 1000-odd military bases abroad which keeps the world stable for capitalism and global trade. That was the deal that allowed the US to have the dollar, to pay for the military to defend capitaism, while the euros got civilized societies. One would imagine that the burden of security would then be shifted to the EU, or that their reluctance is one pressure keeping the dollar as is.
How many noticed the Noise Machine start howling about Right-Wing revolt as soon as Obama was elected ?
Media control would suggest that was a move presaging future actions: lockdown.
Funny scuttlebutt at Fort MacMurray this spring was that there was an absolute monstrous amount of oil at the Beaufort Sea that was being kept secret from the proles. Have you noticed the energy futures in North Dakota?
I have another idea. The game proceeds afoot.