…the political sharpies keep telling me that people don’t care about the weak dollar, or at least that it doesn’t have any legs as a political issue. I think they are dead wrong.
…the political sharpies keep telling me that people don’t care about the weak dollar, or at least that it doesn’t have any legs as a political issue. I think they are dead wrong.
I have a way to strengthen the Dollar and remove politics from the proccess:
Merely pay all legislative people $1 million per year and not allow them to earn ANY outside income (there were such government positions at one time). Have this amount set by Consitutional law and unchangeable.
The people in charge will be sure to see to it that our Dollar was stable.
Don
A weak dollar means that US manufactured goods are more likely to be purchased overseas. That means that US factories are less likely to close and US workers are more likely not to lose their jobs to foreign workers. A weak dollar makes the US a destination of choice for tourists.
Wow! Huzzah for the weak dollar!
Sick and Tired – Unfortunately, with America having to import its energy supplies as well as the energy technologies (hybrid automobiles, wind turbines, solar panels, energy efficient lighting, electronic drives and motors,) to help us deal with imported fuel with seriously eroded dollars only continues the misery for those who need energy supplies just to make it to work.
A stronger argument would be for the US to put in place policies to unleash a movement to make America energy independent sourcing its own fuel here and manufacturing its own energy technologies by American-owned companies. Then a strong dollar coupled with American ingenuity will ensure Americans continue to work, and put America back into the position it occupied in the 1950s – a strong dollar and full employment. It is in America’s vital self interest to be energy independent and this will help employment and the dollar.
I would take this a step further: I would say that [url=http://www.vulcanhammer.org/?p=473]the decline of dollar hegemony[/url] is the most important long-term issue in front of the country, at least economically.
Since President Bush took office in 2001, the value of the dollar has fallen:
— 73% against the value of oil (oil price is 3.7 times what it was); and
— 69% against the value of gold (gold costs 3.3 times what it did)
This isn’t just a matter of higher commodity prices: the dollar has fallen 41% against the euro.
The devaluation of the dollar also tends to devalue dollar-denominated assets.
A devalued dollar makes needed imports more costly [cf. #3]. It also makes it easier for foreigners to buy up American firms on the cheap.
PS to #5: The day may come when we wish all foreign acquirers were as benign and flexible as the Dubai Ports Authority.
I lived through Britain’s currency crisis in the Seventies and now have watched the dollar dive in the 2000s. Living in England right now I am glad I am paid in pounds, but I worry about the ultimate value of my pension. One thing I have learned is that allowing the devaluation of a currency is merely a short-term solution to a long-term problem. The second thing I learned is that even if it doesn’t appear to hurt the folks at the grassroots initially, ultimately it will. The third thing is that responsible fiscal policies help maintain the strength of a currency. The fourth is that “political sharpies” always think in the short-term, aren’t really worried about the grassroots, and wouldn’t know a responsible fiscal policy if it came up and bit them on the bottom!
p.s. Most of my pension will be paid in dollars
Given all the advocacy for a stronger currency above, perhaps we should consider ending our addiction to fiat currency…if we [i]really[/i] want to have a strong dollar. Perhaps if our currency were on the silver standard, we wouldn’t have all these national and international boom/bust cycles. The cycles would be limited to a particular locality and particular industries. As it is now, we all pay for [share the risk for] irresponsible behavior by a handful of companies because the government and the FED are bailing them out at our expense. Why are my savings being destroyed by inflation? I didn’t buy a house I couldn’t afford. I didn’t speculate and try to flip a house. I have paid my credit card debts. I have paid my loans. Despite my “good” behavior, the FED has printed money and devalued my pension savings by about half and taken away much of the purchasing power of my disposable income. The only “benefits” are that my mortgage is a fixed rate and my pay is (laggingly) inflation indexed so my housing expenses are becoming less of a percentage of my overall expenses…despite the rising property taxes.
The fact that the Fat Cats are starting to feel the pain of inflation and can’t as easily afford to drive their SUVs to work or heat their McMansions really makes me want to shed a tear…of joy. Because of their fiscal irresponsibility and outright fraud [Enron, et al.], my pension savings have been robbed of half their buying power. At least I have the satisfaction of knowing that they aren’t fairing much better because of inflation.
As for losing cheap imports…I will lament not being able to buy the lead laced toys from China, the poison toothpaste, the poison pet food, etc. Gosh, what will I ever do with out them? I will also be so sad not to hear a thickly accented foreign voice on the other end of the phone when I call tech support or luggage claims. I will really mourn that companies will cut back on hiring foreign nationals on H1-B visas and have to start hiring the local talent or do without.
I am also looking forward to seeing exactly how fair the NAFTA and GATT treaties really are, now that we are the ones with a weak currency. I mean, for a decade now, most Americans have been hearing that giant sucking sound as our jobs have gone away…oh, yeah, we got lower paying service jobs so the unemployment figures all look rosy…but will the treaties hold as the wealth starts flowing back to America? [BTW, don’t bother telling me about how “average†wages have risen. CEO pay vs. worker pay has skyrocketed while the median income has stagnated at around $40,000 a year and raises are eaten up by inflation.]
So, huzzah for the weak dollar! May the pain spread all the way up to the top! Moral hazard needs to be applied there most of all. It wasn’t the workers that got us into this mess. Productivity grew by 4.1% while compensation grew by only 1.5%. In other words, productivity growth outpaced compensation growth by 72%, all while the CEOs were making obscene compensation. Where is the moral hazard for them?
John Mack, Morgan Stanley $11 billion in write-downs Compensation: $25 million minimum
James Cayne, Bear Stearns $10 billion one day loss Compensation: $40 million and $1 Billion in stocks
Bob Nardelli, Home Depot Stocks down 30% in 2007 Compensation: $210 million payout
Stan O’Neal, Merrill Lynch $30 billion in write-downs over just three quarters Compensation: $162 million
Sick & Tired [#9]: “Perhaps if our currency were on the silver standard, we wouldn’t have all these national and international boom/bust cycles”
We had much more severe economic busts when we were on the gold standard. Serious financial panics occurred in 1837, 1857, 1873, 1884, 1890, 1893, and 1907.
For a dramatic example of a gold-standard economic bust, consider the worldwide “Long Depression” of 1873-1896. It lasted 23 years. Monetarists (e.g., Milton Friedman) attribute it to a money shortage resulting from the gold standard: economic growth outstripped gold production, resulting in painful deflation.
Apart from the Great Depression, the Panic of 1907 was the most severe economic downtown in American history. For two months banks refused to let depositors withdraw their money. Lenders willing to make overnight loans to securities brokers charged interest at an annual rate of 100%. Employers paid wages in tokens and scrip.
Irenaeus #10,
I never said anything about going to a gold standard. I said we might avoid national and international boom/bust cycles if we were on a [b]silver[/b] standard.
Of course, the real culprit is fractional reserve banking.
Here is a good read:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
May I especially recommend the last two paragraphs.
I would also like to point out that I think “they did it” again.
“I never said anything about going to a gold standard. I said we might avoid national and international boom/bust cycles if we were on a silver standard” —Sick & Tired [#11]
Why exactly would a silver standard avoid the problems of the gold standard?
How, in particular, would it avoid the financial busts I discussed earlier?
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“Of course, the real culprit is fractional reserve banking”
There you go again. All banking involves fractional reserves. Without fractional reserves, banks would be gigantic and very costly safe-deposit boxes.
Here’s what I wrote about this on a previous thread:
“‘Fractional reserves’ sounds complicated but the basic idea is straightforward: Banks keep enough cash on hand to meet the likely demands of their depositors and borrowers. But banks don’t keep enough cash on hand to pay off all their debts at once. Instead, banks use depositors’ money to make loans and other investments.
“This is the very heart of banking. All banks have operated this way since the Middle Ages (even at times when governments strictly based money on gold and silver). If banks kept all deposits in the form of cash in a vault, banks could not pay interest on deposits: after all, banks would earn nothing from the money but would still have to pay their own expenses. Depositors would have to pay banks to keep their money—just as people now pay for safe-deposit boxes. Is that really the world you want?”
http://titusonenine.classicalanglican.net/?p=7660#comment-216610
“Why exactly would a silver standard avoid the problems of the gold standard?”
There is a lot more silver than there is gold. My point is that if the currency isn’t baseless, there must be [i]some[/i] limit to how much specie can be printed.
The reason today’s’ fractional reserve banking is different is because we have fiat currency. There is no limit on how much they specie they can print. The banks are creating “money” out of nothing. The value is based strictly on the confidence of the users, with no underlying value. When that confidence is shaken [by things like printing so much baseless money that it causes inflation] the currency loses value.
I would argue that the Federal Reserve created the dot com bust [as well as the bust in the rest of the stock market] by persistently raising interest rates until they achieved that goal. Greenspan’s speech on “irrational exuberance” was the kick-off. Inflation was completely under control, yet they raised rates constantly [contracting the money supply] to “fight inflation” until they caused a bust. Now, they are printing so much money that it has lost half it’s value compared with foreign currencies and commodities like gold and oil!
If currency had a basis in silver, the Central Bank could not just print money as they can now with a baseless currency. They have succeeded in stealing half of everyone’s money since 2000 by printing their worthless paper and devaluing the currency.
The promise of the Federal Reserve was to end the cycle of booms and busts. You tell me…have they done that?
You cited a series of “panics”. Let’s look at some of them. The panic of 1837 was local and centered in New York. They were bailed out by the Suffolk Bank of Boston lending reserves to other banks, and alleviating the effects of the Panic of 1837 in New England. The panic was local/regional, not national or international. The panic of 1857 was exceptional in that it was predicated by the California gold rush that caused nation wide inflation, and by widespread embezzlement at the New York City branch of the Ohio Life Insurance and Trust Co., a major financial force that collapsed. Again, the panic was mostly limited to New York and New England. The gold rush [an economic singularity] is roughly akin to the regular practice of the excessive printing of money by the Federal Reserve. The difference is that the Federal Reserve is doing it on purpose…creating a so-called business cycle, while discovering a new gold reserve is fairly rare.
If you read the last to paragraphs of the link I provided, you would have seen that Ben Bernanke admits that the Federal Reserve was the reason for the Great Depression!
“I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.â€
But I think they are doing it again…right now. They have printed so much money, that the U.S. Treasury has begun issuing ZERO percent bonds. That’s right, the I-Series Savings Bonds are now offering a fixed rate of 0.0% and just paying the inflation rate. The U.S. Treasury is saying that money is so worthless, that they won’t pay to borrow it!
http://www.latimes.com/business/la-fi-bonds2-2008may02,0,1256531.story
Sick & Tired [#13]: So much misunderstanding, so little time.
1. Friedman argues that the Fed “caused” the Great Depression by holding to views much like yours. As the U.S. economy slipped into recession during the early 1930s, he contends, the Fed should have lowered interest rates and thus (through the effect of fractional reserves in the banking system) expanded the money supply. Instead, the Fed kept interest rates high, contracted the money supply, caused a liquidity crisis, did to little emergency lending in response to the crisis, and oversaw a meltdown of the banking system. In sum, the Fed’s blunders catastrophically debilitated the banking system—and, in so doing, made it more like the system you say you want.
2. Please explain how the Fed “prints specie.” This will be interesting.
Wrong term. Specie is coin. I was thinking it was “money” not limited to coin. Thanks for catching that.
According to Friedman and Schwartz, [b]the FED engaged in a “deliberate tightening of monetary policy that began in the spring of 1928 and continued until the stock market crash of October 1929.”[/b] They did this despite the fact that “commodity prices were declining, and there was not the slightest hint of inflation.” [Gosh, that sounds a lot like what Greenspan did to us!]
They went on to ask the question; “Why then did the Federal Reserve tighten in early 1928?” Their answer was that the “principal reason was the Board’s ongoing concern about speculation on Wall Street.” The FED made a deliberate choice and began “using monetary policy to try to arrest the stock market boom.” The FED was very concerned about “‘speculative’ uses of credit, and the rising stock market and the associated increases in bank loans to brokers.”
What they did not point out, but what is obvious from the text, is that the FED is the responsible party for the speculation in the first place. Where were the banks getting the money to lend to the brokers? They got the money from the FED. Where did the FED get the money? Why, they just printed it. Why were banks lending so easily and allowing brokers to speculate? The FED had low interest rates and a lot of money in circulation. The FED provided the fuel for the speculation and all the leveraging that was going on, and then they deliberately pulled the rug out from under everyone. Then, wonder of wonders, we went off the gold standard.
The FED has given us the Great Depression, the Stagflation and Misery Index of the 70’s, the S&L;crisis of the 80’s, the dotCom bubble and bust of the 90’s, and our current housing bust. These “panics” [although deliberately done by the FED…so I don’t think the word “panic” applies] were all brought about by the FED and they were all national and/or international in scope.
Without the FED, “panics” were genuine surprises, not planned events and they were local/regional, not national/international.
The FED is evil. Through inflation, the FED has stolen HALF our purchasing power and HALF the value of all our assets in less than a decade. Those living now will NEVER recover from what they have done. We will never be “made whole”.
Oh, and did I mention that this system of private banks [complete with share holders] got paid [6% of all the cash they printed] to do this to us!
On the bright side, they just inflated the currency so much that we won’t default on Social Security and all the debt owed to China [and others] is now worth half what it was. What a coup!
#16: Your last paragraph reminded me [url=http://www.vulcanhammer.org/unusual/roubles.php]of an adventure I had when I visited Russia after their currency had collapsed, as I describe here[/url].
Sick & Tired [#16]:
You have no idea what you’re talking about.
You say, “What [Friedman and Bernanke] did not point out, but what is obvious from the text, is that the FED is the responsible party for the speculation in the first place.â€
Obvious to you, perhaps. Friedman believed that a central bank should let the money supply grow in proportion to the growth of the real economy, so as to remain in balance with the demand for money.
Friedman took fractional reserve banking (your bugaboo) as a sound given. He defined the money supply to include currency and bank deposits. He criticized the Fed for letting the money supply grow excessively during the 1920s boom and letting it contract excessively during the ensuing bust.
Note that by banishing fractional reserves, you would end all money-creation by banks—a catastrophic contraction of the money supply that would make the Fed’s pre-Depression tightening of monetary policy look inconsequential.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
You say, “Where were the banks getting the money to lend to the brokers? They got the money from the FED.â€
Here the nonsense mounts stilts.
Banks raise money mostly from their DEPOSITORS. At the end of last year, FDIC-insured U.S. banks in aggregate had $13.0 trillion in total assets, including $7.8 trillion in loans. To fund those assets, banks had $8.4 trillion in deposits, $3.2 trillion in other liabilities, and $1.4 trillion in equity. http://www4.fdic.gov/qbp/2007dec/all2a.html
The FDIC has a good pie chart showing the components of banks’ total liabilities and equity—the total pool of money from which banks fund their assets. Here are directions for getting to that chart:
1. Click here: http://www4.fdic.gov/QBP/index.asp
2. Click on “QBP Graph Book.â€
3. Under “All Institutions Section,†click on the third link, entitled “Assets and Liabilities.â€
4. Click on the first link, “Total Liabilities and Equity Capital.â€
You will see that “Other Borrowed Funds†account for only 9.3% of the total. Borrowings from the Fed account for only a miniscule fraction of “Other Borrowed Funds.â€
The Fed had $37 billion in loans outstanding at the end of 2007—an amount equivalent to 0.3% of banks’ aggregate total assets.
To verify that, click on http://www.federalreserve.gov/releases/z1/Current/z1.pdf
Go to page 9 (“Total Net Borrowing and Lending in Credit Marketsâ€), line 34 (“Monetary Authorityâ€): $37.2 billion.
Think about it: $37 billion in Fed loans ÷ $13 trillion in aggregate bank assets = 0.28%.
Banks as a group funded $1 out of every $351 in assets with loans from the Fed.
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“The FED is evil. Through inflation, the FED has stolen HALF our purchasing power and HALF the value of all our assets in less than a decade. Those living now will NEVER recover from what they have doneâ€
If they stole it, where did they put it?
Although inflation has eroded the value of the dollar over the past decade, the value of stocks and tangible assets has risen faster than the rate of inflation.
Inflation “robs†you of value only insofar as you have FINANCIAL assets that bear interest below the inflation rate (or no interest as all).
BTW, thank Bush, not the Fed, for devaluing the dollar.
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Stop tormenting yourself with a preposterous set of misunderstandings.
“The FED is evil. Through inflation, the FED has stolen HALF our purchasing power and HALF the value of all our assets in less than a decade. Those living now will NEVER recover from what they have done” —Sick & Tired [#16]
Just a few days ago this same commenter was (if I recall correctly) cheering the declining value of the dollar. Go figure.
Ok, educate me.
Please explain the Federal Reserve’s role in the Great Depression, the stagflation of the 70’s, the dotcom bust of the 90’s, and the current housing crisis.
Did or did not the Federal Reserve raise interest rates from the spring of 1928 until the stock market crash of October 1929?
Did or did not the Federal Reserve under chairman Paul Volker tightened the money supply and cause the biggest recession since World War II; with a prime rate 21.5% and an unemployment rate of just under 11%?
Did or did not the Federal Reserve raise interest rates six times, from 1999 until early 2000, until the market crashed and wiped out $5 trillion from 2000 to 2002? [My retirement fund lost about 40% during that time, because I was in the “buy and hold” camp.]
Did or did not the Federal Reserve raise interest rates 17 times between 2004 and 2006 [increasing them from 1% to 5.25%], before pausing? What did that constant raising of interest rates do to the housing market? [I dodged this bullet and have a 30 year fixed at 5.75% on a house I bought under market. It is still valued about 60% more than what I paid for it and I have been paying extra on the mortgage for years.]
Prior to each of these instances, what had been the rates set by the Federal Reserve and were those rates too low, causing inflation and market bubbles?
Please, educate me.
BTW, Irenaeus, the reason I was cheering on the declining value of the dollar was that I believe that the pain of these boom/bust cycles is finally hitting the upper income tier and that they are now “feeling the pinch” the same as the rest of us, because they were losing their purchasing power as much as the little guys. Misery loves company. I also thought it might have a positive effect on stimulating manufacturing and tourism in the US. I like to try and look on the bright side.
I lay myself at wisdom’s feet and eagerly await correction.
Sick & Tired [#20]: Wisdom rarely begins with a long recitation of post hoc, ergo propter hoc—particularly when you’re trying to change the subject. No one has argued here that the Fed is free from error. You, by contrast, have asserted (1) that the Fed lending to banks fueled the securities boom of the 1920s and (2) that “the FED is evil [because it] has stolen HALF our purchasing power and HALF the value of all our assets.”
Sounds like you blame the Fed for everything. If the stock market soars too high, blame the Fed. If the stock market comes down again, blame the Fed. If subduing inflation causes pain, blame the Fed. If we have a housing bubble, blame the Fed. If the deflation of the housing bubble causes pain, blame the Fed. (Come to think of it, this would make a good song, set to the tune of “If You’re Happy and You Know It, Clap Your Hands”: http://kids.niehs.nih.gov/lyrics/happyand.htm )
Conducting monetary policy is difficult. The Fed can influence short-term interest rates—but with a lag of some 18 months. That’s like driving a car through difficult terrain using only the rear-view mirror. That’s one reason why the Fed might mike so many small, successive changes in its target interest rate.
“If the stock market soars too high, blame the Fed.”
That would be because they are the ones who lowered the interest rates too low and kept them there too long putting too much liquidity in to the economy.
“If the stock market comes down again, blame the Fed.”
That would be because they irresponsibly raise interest rates too high too fast and crash the market.
Correct me if I am wrong…weren’t the “panics” that occurred before the Federal Reserve local/regional? Aren’t the “panics” that have occurred since the Federal Reserve national/international.