Dazed and Confused

I have been having a good time of it debating the pros and cons of a falling US dollar
versus the Euro with my European colleagues. The popular contention is that the Dollar is in a freefall, and because Bush was re-elected, this will usher in some sort of financial Armegeddon.

But, few people seem to realize that much of what we import is tied directly to the US dollar in terms of dollar pegging, and I am specificaly referring to the Asian currencies. And this can be used as a weapon against European manufacturers, because their labor costs inflate as their currency revalues. Thus, cheap Asian goods flood Europe, keep a steady price to Americans,
and auto producers (such as Mercedes) are forced to lower earnings estimates.

The cheaper dollar has the benefit of helping stimulate the US economy, which already looks quite solid for the fourth quarter. And especially, this helps out the beleaugered rust belt states because they can produce more autos, steel, etc.

So, watch for Europe to be forced to loosen monetary policy by decreasing rates, instead of the Fed significantly having to tighten. The USA is a Pacific rim country in terms of trade already, so the press overblows the implications of an expensive Euro to the average consumer.

(Once again, we see that John Francois Kerry was absolutely out of his fricking mind....)

See the following Chicago Sun Times column:
Coxe: How to stop worrying and love the tumbling greenback

November 29, 2004

BY MARY WISNIEWSKI Business Reporter

The once-mighty U.S. dollar declined against the euro for a 7th straight week last week, falling to almost $1.33. That's bad news if you're planning a trip to Paris.

But Donald Coxe, chairman and chief strategist of Harris Investment Management Inc., says the decline is good in the long run for the U.S. economy. In a wide-ranging conversation, Coxe explains why he thinks oil prices are so high, why some Americans feel pinched, and why we should stop worrying and love the falling greenback.

Q. Oil prices are up as high as $50 a barrel, causing havoc for the airline and other industries. How did it get so expensive?

A. It's Economics 101. We have failed to discover enough new oil, and now we have China's consumption. China's consumption is up 140 percent in two years. This is an astounding number. It's been calculated that when, not if, the coastal regions of China have the same percentage ownership of automobiles that South Koreans have today, we'll need two new Saudi Arabias to meet their demand.

Q. Will oil prices keep going up?

A. No. When you get oil at $50 a barrel, it slows down the global economy. I'm seeing a trading range between $35 and $60 on the assumption the economy is going to slow down. If it doesn't, we're looking at $60 to $70.

Q. Why did so many good jobs leave the U.S.?

A. There are three ways we can't compete. One is the dollar is too high-priced -- that will be solved by the market. Number two is the gigantic burden of employers having to pay for health care, which no other country imposes on employers. We're not going to solve that problem. Number three is we have this tort system which no other country in the world has which is a terrible burden on our manufacturers...

Frankly, today, I don't know why an American company would want to build a new plant in Illinois. ...To create the kind of good paying jobs that we need -- not jobs working at Wal-Mart or working part-time for some tech dot-com on the edge of bankruptcy -- we need to devalue the currency and that's what's happening.

Q. How worried should we be about the budget deficit?

A. The budget deficit will go near zero again once we get the trade deficit down. The trade deficit [at 5.7 percent] is the source of the budget deficit, because we don't create the good paying jobs at home to pay taxes on....

China's number one in the trade deficit now. China exports a vast array of goods -- literally half the stuff at Wal-Mart that isn't food was made in China. Our biggest exports to China are used newspapers and scrap metal.

Q. What is one impact of rising interest rates?

A. For Americans who maxed out their credit cards, it will be catastrophic. We'll have more personal bankruptcies. But those excesses will have come home to roost anyway. You shouldn't operate a system to subsidize those who spent beyond their means and need low interest rates to survive...

Q. Will a devalued dollar mean that stuff costs more?

A. If you lower the value of the dollar, everything you buy at Wal-Mart will cost you more. What that does is create a pricing umbrella for American companies to operate.

Q. What does the growth of the Asian middle class mean for us?

A. When [former Chinese leader] Deng Xiao Peng was around, there were 5 million Chinese at the most who had indoor plumbing, indoor heating, and electricity. It's 100 million now. We're going to be three-quarters of a billion in 10 years. There's no precedent for that. ...India's coming on even faster than China.

So what we have then is a situation where it's a wonderful thing that they're getting to share the great American way of life. But they're bidding up the cost of what we use because they need it immediately. But what they aren't doing is buying stuff from us. They're creating wealth by their ability to sell to us. So oddly enough, the more prosperous China gets, the bigger the trade deficit.

You can adopt a [John] Kerryesque approach on this which is that it's Benedict Arnold CEOs who are sending jobs there. Or you can be realistic about it and say we've just got to find ways we can participate and frankly, until the dollar gets devalued, there's very little we can do.

Q. What are your short-term predictions for the U.S. economy?

A. We're going to go through at least two years of adjustments because you don't get the benefits of a currency devaluation for quite a while. We're going to underperform the global economy. My optimism is about the two years after that. ...If we get the dollar down [to $1.60 on the euro], then good American companies will be able to compete.