Strong Dollar vs Weak Dollar

[jerseydevil]

I was thinking of starting this thread for a while becuase of our huge trade deficit, the rising Euro, etc.

I was wondering what people thought was better - a strong dollar or a weak dollar. The dollar hit a historic low against the Euro today. This is AFTER Bush reiterated his policy of a strong dollar.

Now a weak dollar makes our products easier to sell overseas, but makes imported products more expensive here (one of the reasons for our huge trade deficit).

Now also - a weak dollar discourages international investment into our stock exchanges (NASDAQ, NYSE, etc).

A strong and stable dollar is what makes the US dollar the world's currency. This in itself brings a lot of benefits. Russia is currently supposedly dumping dollars and replacing them with Euros and a strong dollar shows confidence in the US.

Now which is better for America? I think the strong and stable dollar is in the long run. I think the world's currency and the benefits it brings to the stock market outweigh the trade deficit, just as long as the trade deficit just doesn't get out of control.

If anyone has any information on how the currency rates affect various aspects of the economy - that would be great to post. I tried finding a website to explain this, but I wasn't able to.

[gimli7410]

when i saw this i thoughtyou meant like american dollar vs canadian dollar

[jerseydevil]

Originally posted by gimli7410
when i saw this i thoughtyou meant like american dollar vs canadian dollar

No - US Dollar versus general currency. In the 1980's it was felt that the Yen was going to overtake the US dollar as the world's currency. Now it is felt that the Euro might.

Going to Canada is VERY cheap for Americans though.

[gimli7410]

Originally posted by jerseydevil
No - US Dollar versus general currency. In the 1980's it was felt that the Yen was going to overtake the US dollar as the world's currency. Now it is felt that the Euro might.

Going to Canada is VERY cheap for Americans though.

well dont worry were not a competitor less we legalize weed maybe. actually the canadian dollar is going up. but i still dont get much for an american 20 i only get like 25 canadian

[afro-elf]

Good topic but I have to admit I am currently quite ignorant of the topic. I have a few economic books I plan on reading in the new year. Maybe then I can add some worth while comments.

I can say I like a weak Yen. Since I am paid in yen the lower it goes the more US money I get in exchange.

[jerseydevil]

Originally posted by afro-elf
Good topic but I have to admit I am currently quite ignorant of the topic. I have a few economic books I plan on reading in the new year. Maybe then I can add some worth while comments.

I can say I like a weak Yen. Since I am paid in yen the lower it goes the more US moeny I get in exchange.

Yeah - I'm wondering how many people really understand currency rates and how they effect countries and politics. You were actually the one person I thought WOULD DEFINTELY be able to contribute something.

[mithrand1r]

Originally posted by jerseydevil
. . .
I was wondering what people thought was better - a strong dollar or a weak dollar. The dollar hit a historic low against the Euro today. This is AFTER Bush reiterated his policy of a strong dollar.

. . .

Now which is better for America? I think the strong and stable dollar is in the long run. I think the world's currency and the benefits it brings to the stock market outweigh the trade deficit, just as long as the trade deficit just doesn't get out of control.

If anyone has any information on how the currency rates affect various aspects of the economy - that would be great to post. I tried finding a website to explain this, but I wasn't able to.

I am not sure how the various aspects of an economy are effected by a "strong" vs. "weak" dollar.

I think in the short term, a "weak" dollar has the benefits you mentioned:
It is cheaper for American products to be sold overseas. and
Foreign products are more expensive to similar US products in the USA.

Encourages tourism in USA since foreign money goes further. and conversely discourages US tourism abroad since US dollar is worth less than foreign currencies.

For the Long term, I think a strong dollar is better for the US. (Foreign investment in US markets, US remains influencial among international circles, US dollar is used as a "de facto currency" which leads to people holding US currency. This has the effect of giving the US government an interest free loan.)


This is a little off topic, but I think that balanced trade among the world nations is better for everyone. It is not good for the collective world to depend on a few (or one) nations to buy their products without reciprocal buying. (not necessarily the same products)

If Hypothetically the US stopped buying foriegn products, it could lead to severe world wide economic consequenses.

I am not sure that I can explain it adequately, but basically all national economies are linked to one another. If one economy suffers it affects the other world economies.

[afro-elf]

Originally posted by jerseydevil
Yeah - I'm wondering how many people really understand currency rates and how they effect countries and politics. You were actually the one person I thought WOULD DEFINTELY be able to contribute something.

Sorry, you to have failed you Darth Freddie.

When I was in Saudi the Riyal was always 3.75 for 3 years.

Here in Japan the yen is up and down. Actually that is why I bought those ecomonic books so I could learn some more.

As a related but still off topic note.

I can pay off my WHOPPING school loan in under three years and then I am looking into some investing and semi-retirement in about in about 5-7 years.

The key word there being SEMI

[jerseydevil]

I did find a currency blog that discusses the US dolar in relation to other currencies and it's role.

For instance...

Washington Post columnist David Ignatius spells out in "Fiddling while the dollar drops" a scenario where the dropping value of the dollar against other currencies (particularly the euro) could drive Asian central banks to hedge by diversifying their reserves, which in turn could further weaken the dollar on exchange markets, which could drive the Fed to boost interest rates to protect the currency, which in turn could drive down the stock market. Ignatius' thesis is that the cheap dollar is politically expedient at present, and thus there is concern by a number of experts that the market value of the dollar could "overshoot" as it declines, triggering these undesirable consequences.

See Reserve Currency fro more info.

Oh - and A-E - you must PAY for your failure.

[Sween]

I dont pretend to understand the sulties of money etc but from what i can make out its good to have neither a strong or week dollar but what seem to be the aim is to have a balancled

[mithrand1r]

Your question has me thinking more about the strong and weak dollar.

Here are some links:

econedlink

StrongDollar

Mises

Tracking the U.S. Dollar By William Poole

Single-minded

This makes me think that the reasons why a currency (in this case the US dollar) is relatively Strong or Weak are important to consider when deciding if a Weak or Strong dollar is good or bad.

I generally consider that when the US economy is strong the US dollar is strong as well. This is not always true.

I think that Sween is closer to the mark. The must be a balance. (Now we need to figure where that balance is located. )

[jerseydevil]

Originally posted by mithrand1r
Your question has me thinking more about the strong and weak dollar.

That was the reason for the thread - to get people to think.

Here are some links:

Thanks for the links - those are exactly what I was looking for. I wanted things that would explain how currency works and affects us - that it's not just something that we use to buy products with.

This makes me think that the reasons why a currency (in this case the US dollar) is relatively Strong or Weak are important to consider when deciding if a Weak or Strong dollar is good or bad.

I generally consider that when the US economy is strong the US dollar is strong as well. This is not always true.

Generally it's true - but most of the time it's more of an indication on the US's or any other country's future outlook. Since the terrorist attacks the dollar has been going down against the Euro, it was thought it would reverse after Saddam Hussein was captured, but it didn't hasn't. On Monday the dollar hit a historic low against the Euro.

I think that Sween is closer to the mark. The must be a balance. (Now we need to figure where that balance is located. )

A balance is important. One of the reasons we import so much is because of the strong dollar. In Port Elizabeth and Port Newark - you can see the effect of the trade deficit. The storage containers are piling up because not enough exports.

[Nurvingiel]

I took a 1st year Economics class last year, let's see what I can remember. (Not that I claim to be an expert on the subject... )


Neither a moderately strong or weak dollar is negative. If the dollar is too strong, no one will buy anything in the country, and the dollar will come down to a more moderate value. (People will then resume importing from the country.)

Having a moderately low dollar is okay, because your exports will increase and your imports will decrease. This usually results in your dollar increasing in value. I think this is because more money coming in to the country than going out increases the GDP (Gross National Product).

Having a moderately high dollar does the opposite - greater exports than imports eventually lower the value of the dollar.

Having an extremely low dollar is very negative. Someone pointed out that this leads to instablity because no one will invest in the country. This leads to a dollar that says low and is nearly worthless.

I think that's caused by an Inflation Spiral, where the prices of goods continue to rise so that the real value of the dollar is very low.

Great thread JD! It really got me thinking.

[mithrand1r]

Some more articles on strong weak currency and some articles on the gold standard.

Ironically, it seems that the more I look into the pluses/minuses of a (strong/weak) currency the more questions I find.

White House's Dollar Dilemma:
Weak Currency Helps Economy
MICHAEL M. PHILLIPS and MICHAEL R. SESIT / Wall Street Journal 13may03
http://www.mindfully.org/Reform/2003...oss13may03.htm

Strong Dollar, Weak Dollar: Anyone Have a Scorecard?
By Edmund L. Andrews
New York Times
September 24, 2003
http://www.globalpolicy.org/socecon/...weakdollar.htm

Corporate Crisis and Bubble Capitalism
http://www.globalpolicy.org/socecon/...ex.htm#deficit

The Value of Currencies
http://www.fxdd.com/fxddtutor_6_4.htm

Gold is Freedom
http://www.goldisfreedom.com/default.htm

Euro Inflation
The Inflationary Euro by Jeffrey M. Herbener
http://www.mises.org/fullarticle.asp?record=124&month=4

A GOLD POLARIS by Jude Wanniski
http://www.polyconomics.com/searchbase/gp1.htm

What Has Government Done to Our Money?
Murray N. Rothbard http://www.mises.org/money/4s1.asp

Gold Standard vs. Fiat Money
http://economics.about.com/cs/money/...standard_2.htm

[jerseydevil]

here was this article on CNN.com about the upcoming G7 conference...

G7 to discuss dollar's slide
Falling currency has some finance ministers from the Group of Seven richest countries concerned.
December 30, 2003: 10:07 AM EST

BERLIN (Reuters) - Finance ministers from the Group of Seven richest nations will discuss the dollar's slide when they meet in February, as Europeans become increasingly worried it may hurt economic recovery, a G7 source said Tuesday.

A euro level clearly higher than $1.20 could not be good for Europe's economy, while a level of $1.30 represented a "pain barrier," the source said.

A stronger single currency, which broke the $1.25 barrier for the first time Monday, can erode the euro zone's competitiveness by making goods produced there more expensive to customers outside the 12-nation region.

But the source said the United States should also not be happy with a sharply weaker dollar, which could lead to a flight of capital from the country, depressing stock markets and pushing up long-term interest rates.

G7 finance ministers begin a two-day meeting in Boca Raton, Fla., Feb. 6, their first since gathering in Dubai last September, when they called for flexible exchange rates.

Although their Dubai statement was aimed at Asian countries, it chiefly accelerated the dollar's slide against the euro and other leading free-floating currencies outside Asia.

One euro zone monetary source told Reuters that currencies would be on the agenda at the next G7 meeting and policymakers needed to avoid confusion caused by the Dubai statement.

Europe prefers to coordinate policies with its G7 allies, but the source did not rule out euro zone officials acting alone if euro appreciation threatened to destabilize markets or an economic recovery.

The euro fell slightly in reaction to the G7 source's comment but quickly recovered to stand just below this week's record high around $1.2511.

"It's probably just another German moaning, which is why the market isn't paying much attention," said Julian Jessop, chief European economist at Standard Chartered in London.

"There is no doubt that some European politicians and central bankers are concerned about the euro's strength, but I doubt the U.S. will care what the Europeans say. The Germans might want to discuss the euro, but it is unlikely the Americans will."

The euro's value has risen nearly 20 percent this year. The German government said Monday it was relaxed about the level of the euro, adding German exporters were extremely competitive.

Juergen Stark, Vice President of the Bundesbank, agreed the euro's value was no cause for worry, telling Germany's Boersen Zeitung newspaper on Tuesday the balance between good and bad effects from its appreciation was "not necessarily negative."

Only 10 percent of German exports went to the United States, compared with about 50 percent within the euro zone, he said.

German Chancellor Gerhard Schroeder said in an article in Tuesday's Handelsblatt business daily that German exports appear to be strengthening despite the euro's climb.

Indeed, figures released Tuesday showed Germany's trade surplus widened to a record in 2003 as Europe's biggest economy exported more goods than ever before.

Behind the official calm, however, there are signs of growing unease. A senior European Central Bank policymaker was quoted on Monday as saying the ECB was growing increasingly uneasy that euro strength could undermine recovery in the bloc.

Shahab Jalinoos, senior currency strategist at ABN Amro in London, highlighted the discrepancy between comment from the G7 sources and those on the record who formulate policy.

"What you need is for one of them to say something as dramatic as the sources -- and then you probably will see a reaction in the market."

Dealers suspect the Bank of Japan intervened in the currency markets on Monday and expected further action if the dollar fell towards 106.74 yen, the three-year low hit Dec. 9.

Sterling was trading close to this week's 11-year high against the dollar Tuesday.

[Snowdog]

I think we have set new redcords in the Dollar vs Euro this year.

A dollar should still be on the bi-metal standard and worth 1/20th of an ounce of gold or 1 ounce of silver. But these days what a dollar, or a Euro for that matter is worth depends on people's confidence in it as there are not any real reserves to back them.

[Nurvingiel]

But the value of gold also fluctuates. So really, the value of any currency (even if it's used in the most general sense as any medium of exchange) is relative.

Whether you want a relatively strong or weak dollar compared to your trading partners, say, depends on whether or not you import or export more.

In British Columbia we don't really mind a weak dollar for two reasons. One, we export a lot of wood products to the USA, and the forest industry is our largest industry. Our second largest industry is tourism, so the more Americans that visit us the better.

[Snowdog]

The dollar value of gold only fluctuates because the dollar is not tied to it in a gold standard. From 1933 to 1972, a U.S. dollar was worth 1/35th of an ounce of gold. From 1792 to 1933 it was worth 1/20 of an ounce of gold. The dollar was backed by the precious metal and could be redeemed for gold or silver at the Federal Reserve bank. Here is a summary of money history.