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Why Is The US Dollar Getting So Weak?  
User currently offlineDc10s4ever From , joined Dec 1969, posts, RR:
Posted (8 years 1 month 1 week 6 days 14 hours ago) and read 3995 times:

I travel internationally 4-5x a year. Over the past two years I have seen the USD go from 3-1 against the Brazil Reis down to 2-1. We are basically now 1-1 with Canada now and the USD against the British Pound? Dont even go there...It seems as though the USD is just getting weaker against other international currencies.

57 replies: All unread, showing first 25:
 
User currently offlineViv From Ireland, joined May 2005, 3142 posts, RR: 29
Reply 1, posted (8 years 1 month 1 week 6 days 14 hours ago) and read 3995 times:

Because the U.S. has a huge trade deficit - and is one of the most highly indebted countries in the worlsd.


Nikon D700, Nikkor 80-400, Fuji X Pro 1, Fujinon 35 f/1.4, Fujinon 18 f/2
User currently offlineDc10s4ever From , joined Dec 1969, posts, RR:
Reply 2, posted (8 years 1 month 1 week 6 days 14 hours ago) and read 3988 times:

Quoting Viv (Reply 1):
Because the U.S. has a huge trade deficit - and is one of the most highly indebted countries in the worlsd.

Thanks GWB! One of my co-workers is a HUGE Bush fan. He thinks that a weak USD is GOOD for our economy....


User currently offlineViv From Ireland, joined May 2005, 3142 posts, RR: 29
Reply 3, posted (8 years 1 month 1 week 6 days 14 hours ago) and read 3982 times:

Quoting Dc10s4ever (Reply 2):
He thinks that a weak USD is GOOD for our economy

A weak dollar helps U.S. exporters, but makes life difficult for U.S. consumers, who must pay more for imported goods. As I mentioned above, the U.S. is running a large trade deficit and this will not change in the short run, even with a weak dollar.



Nikon D700, Nikkor 80-400, Fuji X Pro 1, Fujinon 35 f/1.4, Fujinon 18 f/2
User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 4, posted (8 years 1 month 1 week 6 days 14 hours ago) and read 3980 times:

Because it's in the US's best interest. A stronger dollar makes it more attractive for US buyers to purchase foreign goods (i.e. the purchasing power of the currency is greater). A weaker dollar makes it more expensive to purchase foreign goods (you need more US dollars to equal the same number of local currency units).

Furthermore, a weak dollar encourages foreign investment in the US. You get more bang for the buck.

The FX game is very complex. While it may make you proud to say that your country has a strong currency, too strong a currency puts you at a distinct disadvantage in global trade. For example, as the Euro strengthens against the dollar, the cost of Airbus planes in dollar terms rises. A plane that costs E100M (equivalent to US$100M) when the exchange rate is at parity, cost US$120M when the exchange rate rises to 1.20:1.

Similarly a Boeing plane that costs US$100M (equivalent to E100M at parity) costs only E83,333,333 when the exchange rate rises to 1.20:1.

Since the majority of Boeing's costs are US$ denominated and the majority of Airbus's costs are Euro denominated, they must either bear the loss or hedge their FX exposure at a cost. Either way, exchange rate has a dramatic effect on trade flows.

In addition, the weakness of the dollar makes US vacations for Europeans much more attractive.


User currently offlineAlessandro From , joined Dec 1969, posts, RR:
Reply 5, posted (8 years 1 month 1 week 6 days 14 hours ago) and read 3974 times:

Problem is when you need to buy something like oil, then the problem starts...

User currently offlineDerico From Argentina, joined Dec 1999, 4276 posts, RR: 12
Reply 6, posted (8 years 1 month 1 week 6 days 13 hours ago) and read 3954 times:

The US dollar has really depreciated against all the Latin American currencies, except the Argentine peso which has actually depreciated against all other world currencies. The South African Rand is also stronger, as are the 'little' dollars (CAN, AUS, NZ).

I think that the US dollar will remain the major currency for decades to come, but no longer dominate like it did. The Euro and Yen are finally taking some of the market out of the dollar, and the smaller 1st world currencies too. Also, emerging market currencies are now more stable than ever and thus attractive. And in the medium future the Chinese Yuan will become a major world currency. So the dollar will remain at top or share the top, but no longer have supremacy.

If everyone really wants their local currency to go far, Argentina is the place. You will be amazed how cheap everything is yet at the same time the services and food are for the most part 1st rate even for the developed world.



My internet was not shut down, the internet has shut me down
User currently offlineVC10 From United Kingdom, joined Nov 2001, 1397 posts, RR: 16
Reply 7, posted (8 years 1 month 1 week 6 days 13 hours ago) and read 3954 times:

I thought oil prices world wide were quoted in US dollars so a falling dollar affects the oil producing countries as they get paid in dollars and so to keep oils buying power the same the price of a barrel of oil in dollars goes up

User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 8, posted (8 years 1 month 1 week 6 days 13 hours ago) and read 3945 times:

But since many oil-producing countries import more from the non-dollar-denominated part of the world than from the USA, they are motivated to increase the dollar prices for oil. Within the €uro-zone the declining US $ buffers some of the increase.

But if the dollar-denomination for oil would be abandoned, things might be moving even faster...


User currently offlineLTBEWR From United States of America, joined Jan 2004, 12878 posts, RR: 12
Reply 9, posted (8 years 1 month 1 week 6 days 13 hours ago) and read 3932 times:

Our deep Federal Government deficits, consumer debts and our trade deficts as to China and other Asian countries also contribute to the value of the US Dollar decline vs. other currencies.

User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 10, posted (8 years 1 month 1 week 6 days 12 hours ago) and read 3917 times:

Quoting Derico (Reply 6):
If everyone really wants their local currency to go far, Argentina is the place. You will be amazed how cheap everything is yet at the same time the services and food are for the most part 1st rate even for the developed world.

Argentina is a very interesting example of how improper controls over currency can get you into a lot of trouble. One year and four days before the last currency crisis in Argentina the WSJ ran an article that pointed out how the Brazilian Real had depreciated against the dollar over the past year.

At that time, the Argentine peso was tied to the US dollar through a currency board. This implied that the Argentine peso had appreciated against the Real by the same amount that the US$ had. Unfortunately, Argentina's economy wasn't performing as well as the rise in the Peso would indicate.

Brazil being Argentina's largest trading partner found it increasingly more difficult to purchase Argentine goods because they were much more expensive on relative terms. As Brazilians stopped buying Argentine goods, the Argentine economy slowed at an ever increasing pace. The government tried to make up for the shortfall in domestic tax revenues by increasing export duties - further exaccerbating the problem of their goods being priced out of the market.

Though the writing was on the wall, Argentina continued to stick to a policy of 1:1 parity with the dollar. They spent hundreds of millions in the open market to try to shore up their currency but it was becoming an harder and harder task as the market tried to equalize at a sustainable level. The rigid adhearance to the peg was done in order to control the hyperinflation that had beset the country several times since the 1980's.

On the date of the WSJ article we had about $2.4M outstanding in trade receivable in Argentina. I immediately ordered our accounting department to revoke open credit terms to Argentine customers. Our sales to Argentina fell from $6M to almost zero over night. COD or LC was the only way we were going to sell. Selling to Latin America on open credit is always a risk - and we carried credit insurance to control our exposure. However, credit insurance comes with large deductible and co-insurance that would have meant that we were looking at almost a 25% haircut if all the receivables went bad.

We managed to get our last dollar of receivable paid six days before the currency collapsed.


User currently offlineMD-90 From United States of America, joined Jan 2000, 8494 posts, RR: 12
Reply 11, posted (8 years 1 month 1 week 6 days 11 hours ago) and read 3897 times:

Quoting Pope (Reply 4):
Because it's in the US's best interest.

It's not in MY best interest, and it's not in the interest of 99% of American individuals. Inflation destroys wealth, and it's happening because the Fed continues to create money out of nothing, which devalues the fiat currency that's backed by nothing but politicians.

It will most likely get much worse when M3 stops being reported in a few weeks. And if January's trend continues for the year, inflation will be 9% or higher in 2006.


User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 12, posted (8 years 1 month 1 week 6 days 11 hours ago) and read 3888 times:

Quoting MD-90 (Reply 11):
It's not in MY best interest, and it's not in the interest of 99% of American individuals. Inflation destroys wealth, and it's happening because the Fed continues to create money out of nothing, which devalues the fiat currency that's backed by nothing but politicians.

Have you compared what the US inflation rate is versus the rest of the world. If you think we have an inflation problem, which major economy is performing better?

The fight to keep inflation under control is precisely why our dollar keeps devaluing. We keep sending more and more dollars out of the country to China, Taiwan, Indonesia etc... which sell us low cost consumer goods. If those currency flows didn't exist, what do you think the price of goods would do in the US? The dicotomy of the Wal-Mart effect is that it sows the seeds of our own destruction.

Businessweek about two summers ago ran a piece that highlighted a plant worker in the last US Levi's manufacturing facility. His wife, in order to stretch the family's purchasing power shopped almost exclusively at Wal-Mart because of the good prices. However, he ultimately lost his job because Levi's in order to keep the Wal-Mart business decided to shift its production overseas.

So you can go around blaming this administration all you want, but the sad reality is that WE THE PEOPLE through our purchasing habits and our constant drive to have more stuff is driving our trade deficit. We drive big cars which consume lots of oil (imported). We like to buy cheap (imported) consumer goods (how many plasma TV's are manufactured in the US?) and have a negative savings rate (therefore we're not the ones purchasing our treasury securities). What would you like the government to do with respect to any of these issues?


User currently offlineDerico From Argentina, joined Dec 1999, 4276 posts, RR: 12
Reply 13, posted (8 years 1 month 1 week 6 days 11 hours ago) and read 3881 times:

Quoting Pope (Reply 10):
Argentina is a very interesting example of how improper controls over currency can get you into a lot of trouble. One year and four days before the last currency crisis in Argentina the WSJ ran an article that pointed out how the Brazilian Real had depreciated against the dollar over the past year.

That policy was over 5 years ago... While I appreciate your story I'm not sure what bearing does it have on things today?

Today, Argentina is artificially weakening it's currency, the opposite of the peg.



My internet was not shut down, the internet has shut me down
User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 14, posted (8 years 1 month 1 week 6 days 9 hours ago) and read 3846 times:

Quoting Derico (Reply 13):
While I appreciate your story I'm not sure what bearing does it have on things today?

Today, Argentina is artificially weakening it's currency, the opposite of the peg.

I intended it to show that "strength" or "weakness" of a currency oftentimes has very little to do with strength or weakness of the underlying economics.

Countries often time have a very good reason for favoring a weak currency. I think that toward the end of 2003/early 2004, the US Treasury secretary intentionally did not try to talk up the dollar as a way of punishing Germany (who was in the midst of its own economic problems) for not supporting the war.

That being said, I for one find it absurd to think that if anyone is betting on which region will have stronger economic performance over the next 30 years, they would choose the Eurozone over the US. By just about every measure of economic performance the Eurozone substantially lags the US and with the aging population demographic the problems will probably get worse.

While the US definitely has to address the twin deficit problem (fiscal and trade), the economic problems facing Europe seem much bigger to me. Social spending is growing by leaps and bounds. Taxation is a constant disincentive to undertake entreprenurial risks and the multilayer multijurisdictional framework of overlapping and oftentimes conflicting sovereignities makes it a mine field for businesses to operate.


User currently offlineCfalk From , joined Dec 1969, posts, RR:
Reply 15, posted (8 years 1 month 1 week 6 days 9 hours ago) and read 3842 times:

Speaking as an economist, I'd just like to say that Pope is dead-on in his analysis.

I would go into more detail, but it would probably bore you to tears, or get you frustrated if you are trying to blame Bush. And in anycase, I have a headache...  Wink


User currently offlineHalls120 From , joined Dec 1969, posts, RR:
Reply 16, posted (8 years 1 month 1 week 6 days 8 hours ago) and read 3830 times:

Quoting Pope (Reply 12):
So you can go around blaming this administration all you want, but the sad reality is that WE THE PEOPLE through our purchasing habits and our constant drive to have more stuff is driving our trade deficit. We drive big cars which consume lots of oil (imported). We like to buy cheap (imported) consumer goods (how many plasma TV's are manufactured in the US?) and have a negative savings rate (therefore we're not the ones purchasing our treasury securities). What would you like the government to do with respect to any of these issues?



Quoting Cfalk (Reply 15):
Speaking as an economist, I'd just like to say that Pope is dead-on in his analysis.

I would go into more detail, but it would probably bore you to tears, or get you frustrated if you are trying to blame Bush. And in anycase, I have a headache...

Pope is indeed correct. While eliminating the US budget deficit would help matters, as long as we as Americans keep buying more foreign products than we sell US products, and as long as we don't save and keep "living for the moment" instead of investing in the future, the dollar will remain weak.

Ben Stein had a chilling commentary on CBS's Sunday Morning program the other day. He urged all baby boomers and young people to begin saving as much as they can as soon as they can, although for the older boomers, it's too late. He noted how little retiring boomers had in savings, and how drastic a cut of living standards they will soon experience.


User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 17, posted (8 years 1 month 1 week 6 days 8 hours ago) and read 3823 times:

Quoting Pope (Reply 14):
I think that toward the end of 2003/early 2004, the US Treasury secretary intentionally did not try to talk up the dollar as a way of punishing Germany (who was in the midst of its own economic problems) for not supporting the war.

The falling dollar merely helped buffer the oil price hike as a result of the Iraq invasion, while the german export boom continued unabated, and still does.

Quoting Pope (Reply 14):
While the US definitely has to address the twin deficit problem (fiscal and trade), the economic problems facing Europe seem much bigger to me. Social spending is growing by leaps and bounds. Taxation is a constant disincentive to undertake entreprenurial risks and the multilayer multijurisdictional framework of overlapping and oftentimes conflicting sovereignities makes it a mine field for businesses to operate.

Nonsense.

Social spending is actually stagnating or falling; Major structural reform programs are already on their way, and the "multilayer multijurisdictional framework of overlapping and oftentimes conflicting sovereignities" may look foreign to you, but it's structurally the same as your own federal, state and local one. And the level of taxes actually paid is actually somewhat lower in Germany than in the USA to my knowledge. Nominal rates are next to useless for a realistic comparison.

If you want to calm your nerves with your imaginings it's more or less fine with me, but I'd worry more about the stagnated structures and imbalances in the US with all the risks which are merely postponed but still remain unresolved...


User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 18, posted (8 years 1 month 1 week 6 days 8 hours ago) and read 3808 times:

Quoting Klaus (Reply 17):
The falling dollar merely helped buffer the oil price hike as a result of the Iraq invasion, while the german export boom continued unabated, and still does.

Source? Statistics? I can't believe that a stronger Euro is a boom for German Exports. Given the level of aggregate unemployment in Germany, this boom doesn't seem to be helping much.

Quoting Klaus (Reply 17):
Social spending is actually stagnating or falling; Major structural reform programs are already on their way, and the "multilayer multijurisdictional framework of overlapping and oftentimes conflicting sovereignities" may look foreign to you, but it's structurally the same as your own federal, state and local one. And the level of taxes actually paid is actually somewhat lower in Germany than in the USA to my knowledge. Nominal rates are next to useless for a realistic comparison.

Source? Statistics? Does your analysis include VAT? If not, what is the VAT rate?

What would a family of four earning $80,000/yr (E66,666) pay in income taxes in Germany?

What would a company with taxable income of $500,000/yr (E416,666) pay in income taxes in Germany?

Let's not debate theories, let's discuss real numbers.

If you'll compute and post the answers for Germany, I'll compute the US equivalents using the following assumptions. Standard deduction, resident in a state with no income tax.


User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 19, posted (8 years 1 month 1 week 6 days 8 hours ago) and read 3801 times:

Quoting Pope (Reply 18):
Source? Statistics? I can't believe that a stronger Euro is a boom for German Exports.

It's not - but it has turned out that it hasn't slowed down the export boom either. People actually want to buy our products, and it's not primarily a matter of price.

Quoting Pope (Reply 18):
Given the level of aggregate unemployment in Germany, this boom doesn't seem to be helping much.

Not as much as one might hope, but with ever-growing efficiency in our industry that was not to be expected. I doubt that we'd fare much better overall, however, if we had the level of working poor without health insurance you do.

Quoting Pope (Reply 18):
Source? Statistics?

It's all publicly available, and we've been over this a few times already. I'm not in the mood for research right now.


User currently offlineYOWza From Canada, joined Jul 2005, 4845 posts, RR: 16
Reply 20, posted (8 years 1 month 1 week 6 days 7 hours ago) and read 3782 times:

Trade deficit.
US gov borrowing from foreign creditors.
Illegal exchange rate fixing from China.
Flow of money out of the US to major entities in the EU, India and China.

YOWza



12A whenever possible.
User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 21, posted (8 years 1 month 1 week 6 days 7 hours ago) and read 3782 times:

Quoting Klaus (Reply 19):
It's all publicly available, and we've been over this a few times already. I'm not in the mood for research right now.

He who fights and runs away
May live to fight another day;
But he who is in battle slain
Can never rise and fight again.

Oliver Goldsmith


User currently offlineKlaus From Germany, joined Jul 2001, 21353 posts, RR: 54
Reply 22, posted (8 years 1 month 1 week 6 days 4 hours ago) and read 3745 times:

I don't have sufficient motivation to invest a major amount of time into defeating unfounded prejudices which are just a sideshow to the actual point. If being able to hang on to those prejudices feels like a victory to you, be my guest - at your own loss.

User currently offlineQANTAS077 From Australia, joined Jan 2004, 5825 posts, RR: 41
Reply 23, posted (8 years 1 month 1 week 6 days 4 hours ago) and read 3725 times:

like i said on my recent trip to the USA, someone asked isn't it expensive for you to travel around here, i said as long as Georgie stays at war i can afford to travel around here cheaply! Our dollar gets pretty good value of close to 80c so i'm happy to come over and have a cheap holiday!


a true friend is someone who sees the pain in your eyes, while everyone else believes the smile on your face.
User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 24, posted (8 years 1 month 1 week 6 days 4 hours ago) and read 3722 times:

Quoting Klaus (Reply 22):
I don't have sufficient motivation to invest a major amount of time into defeating unfounded prejudices which are just a sideshow to the actual point.

Standard response for someone who is unwilling or unable to provide any support for their claims.

I claim no victory. For their to be a victory one must be in competition. I enjoy the honest debate of ideas. However, I prefer that ideas be judged in the context of facts not in the context of what one wishes were true.


25 MD-90 : The government does not report the real rate of inflation. Look at the prices of common things, like gasoline or soda. Up, up and away. No, our dolla
26 Halls120 : They could. And their economies would straight into the toilet with ours....
27 Comorin : The US Dollar is not getting weak - other currencies/economies are getting stronger! Some points: 1. The deficit story is murky - good article in the
28 Lfutia : i remember last year the dollar vs the Indian Rupee was near 50 or sometimes even above... now its struggling to hold 44. Leo
29 Pope : Right. It's a secret that only members of the trilateral commission have access to. Obviously I dealing with an expert at debate and financial issues
30 Post contains images Cfalk : I read that and thought the same thing. Seems, Pope that he's just smarter than either of us.
31 Post contains links Cairo : Dc10s4ever, First of all, I think it's better not to use terms like "weak" and "strong" with currencies because it brings up emotional responses that
32 PSA727 : Actually, against the Yen, Euro, and Pound, the dollar is doing better now than it was this time last year. Interest rates, as well as trade and budge
33 Eilennaei : Who's that us? People that speak German? I'm seeing more and more German-minted Euro coins in my daily change, which constantly reminds me of the bit
34 Klaus : I was talking specifically about the german economy in response to a specific statement. And I don't see what your point above actually is - if your n
35 Eilennaei : I wouldn't know where it rests, but I know before all this EU monkey business and all liberalisation we had a net state budget deficit of zero, and an
36 Luisde8cd : The Venezuelan Bolivar has depreciated constantely since 1983. In 1998 when current president Chavez started his presidency, you need only VEB 500 to
37 Post contains images KiwiTEAL : I wish it would get WEAKER! Today the Aussie Dollar was worth 72 US cents......... makes it bloody hard for me to purchase trade supplies from my Amer
38 MD-90 : Who owns the dollars doesn't really matter. The total sum of dollars in circulation does.
39 Cfalk : Well done pointing that out, Cairo. When you own the bank a thousand dollars, the bank owns your ass. When you owe the bank millions of dollars, you
40 Eilennaei : And I thought currency trading was difficult. Silly me.
41 Cfalk : It isn't difficult. But it is very, very stressful. I served for about a year in the FOREX trading room at a major Swiss bank about 15 years ago, and
42 Pope : Wrong, the value of currency units (e.g. dollars), like everything else, depends on both the supply and the demand. There could be only $1 in circula
43 Texan : It helps the exporters, but with the continuing outsourcing of jobs, "our" products are made somewhere else, actually helping that country's economy
44 Pope : When a US based trader sells a foreign manufactured product to a third country, that isn't counted as an export, either under US DoC calculation or b
45 Post contains images Texan : Right. That's what I was trying to say, but you said it more succinctly Texan
46 Post contains images Cfalk : Well, if I'm gonna do it, I might as well do it here. First of all, the US Dollar is a completely market driven currency. There is no more gold stand
47 BigOrange : He obviously drinks the Bush Kool-Aid
48 YOWza : Good thing it's back to being weak, after all I currently get paid in Canadian. Good work Georgie. YOWza
49 Pope : Perhaps you could shed some light on the macro-economic benefits to the US of a strong currency. My bet is that you're just full of hot air and like
50 Eilennaei : That is too simplistic, and effectively attempting to explain a phenomenon by itself. "It's just the supply and demand" really does not say anything
51 Babybus : In these days of hands off, market lead, pricing, isn't it due to lack of demand? It's probably just a seasonal fluctuation and will be strong again o
52 Pope : You're confusing to concepts. One is the economic price, the other is the market price. As CFalk points out AOTBE is the underlying assumption that i
53 MD-90 : There wouldn't be so many dollars to sell if the government wasn't financing itself with deficit spending and issuing debt.
54 Pope : But that has nothing to do with the relative value of the dollar versus other currencies. As long as demand exceeds supply, price will rise. When sup
55 Texan : Deficit spending is not necessarily bad. It all depends on how and where the money is spent. If there were no deficit spending, the government would
56 Post contains links B2707SST : The reason the Brazilian real has been strengthening against the dollar is that Brazilian real interest rates (nominal interest rates minus inflation
57 Eilennaei : Well I at least thought to have made it clear in my post that today's market price will not be the eventual worth of a sum of a currency, and very fe
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