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I just saw a Goldman Sachs report where they predicted the Euro could go to .8 to the usd by 2017. That might be catastrophic to US companies that export but a boon to cmopanies like BMW & Mercedes. It's going to be an interesting ride the next couple of years.
Only for US production. I stated in my original post on this topic that the only multinationals being hurt by a high $ are those with net exports of US produced goods and services. This a minority. US based companies that produce goods and services overseas or source materials from overseas, and sell them to the US market, love it. They make bigger profits.
Our last 35 years show ample evidence of what that gives us. Lower wages (real wages), higher debt, higher unemployment. The "benefit" is never enough to compensate.
Stronger dollar periods correlate with higher productivity and higher wage growth. Capital goods are internationally priced, and a stronger dollar allows domestic companies higher purchasing power for productivity-enhancing equipment. Your investment dollar buys more. you can see the *Strong* correlation between productivity growth and the strength of the dollar here:
The upswing in the dollar is likely signalling to the market that wage and productivity gains are coming to the US. Capital equipment will become cheaper for the US market and more expensive for others. No country ever devalued there way to prosperity, the best it does is give a quick "sugar high" boost to gdp by delaying creative destruction, but it's temporary benefits are offset bet longer-term hits in future productivity growth.
Multinationals benefit if they sell goods and services to the US market that are produced overseas.
The US public is screwed because our currency is too expense to make investment here worthwhile. Basically a high US$ gives us exactly what we've had for the last 35 years that put us in this position to begin with. Low production and higher debt.
We haven't had a high dollar the last 35 years... It's bounced back and forth between strong and weak periods ever since the Bretton Woods exchange rate system broke apart ~41 years ago. The dollar was weak in the late 70s, strong in the mid 80s, weak in the early 90s, strong in the late 90s/early 00s and weak in the late 00s/early 10s.
The US has a trade deficit because we are the World's reserve currency. It has nothing to do with how competitive the US is or isn't. Being the world reserve currency is actually a net *negative* but we're the only country that can afford it both economically and politically. If you want to read more on this I recommend Michael Pettis' blog (by far the best economic blog on the 'net) he explains it better than I could.
Stronger dollar periods correlate with higher productivity and higher wage growth. Capital goods are internationally priced, and a stronger dollar allows domestic companies higher purchasing power for productivity-enhancing equipment. Your investment dollar buys more. you can see the *Strong* correlation between productivity growth and the strength of the dollar here:
The upswing in the dollar is likely signalling to the market that wage and productivity gains are coming to the US. Capital equipment will become cheaper for the US market and more expensive for others. No country ever devalued there way to prosperity, the best it does is give a quick "sugar high" boost to gdp by delaying creative destruction, but it's temporary benefits are offset bet longer-term hits in future productivity growth.
I had not thought about the fact that it does make capital goods more competitive and that should result in productivity gains over time.
The upswing in the dollar is likely signalling to the market that wage and productivity gains are coming to the US. Capital equipment will become cheaper for the US market and more expensive for others.
Foreign capital equipment becomes cheaper! For people who own US$. US labor is too expensive, so the companies with US$ will offshore more production. It's a great deal for them! This is more of the same disaster that the last 40 years have been!
We haven't had a high dollar the last 35 years... It's bounced back and forth between strong and weak periods ever since the Bretton Woods exchange rate system broke apart ~41 years ago.
It's been too high the whole time. Else we would not have had a high trade deficit.
It's been too high the whole time. Else we would not have had a high trade deficit.
That graph is old. Our current account deficit is less than half what it was 7-8 years ago. Oil Imports were about 1.5% of GDP there too, with both our import levels dropping and the price paid that is likely dropping rapidly that should cushion a large rise in the deficit. Much of the runup in the Deficit from 1998-2008 is from oil imports, which at the time were increasing in both volume and price.
We have a trade deficit because we are the world's reserve currency, and other countries horde our dollars to boost their economies. Being the world's reserve currency *requires* mathematically that we run a trade deficit regardless of the value of the dollar. All trade must net zero. Other countries do not allow net purchases of their currencies because their domestic economies and political power structure are too weak to afford it.
We do not have a trade deficit because the value of our dollar is too high, and honestly limited foreign dollar hording would probably be a good thing for our economy, not trashing the value of the dollar.
Manufacturing output also tends to grow faster during times of dollar strength rather than falling ones as well, because the increase in the purchasing power of the domestic economy increases faster than export loss.
That graph is old. Our current account deficit is less than half what it was 7-8 years ago.
It hasn't improved since 2011, which is the last date shown in the chart above. And all of our recent improvement has been due to a reduction of oil imports, which will change if oil prices remain low.
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Oil Imports were about 1.5% of GDP there too, with both our import levels dropping and the price paid that is likely dropping rapidly that should cushion a large rise in the deficit. Much of the runup in the Deficit from 1998-2008 is from oil imports, which at the time were increasing in both volume and price.
You have it backwards. If you take oil out our trade deficit is as high as it's ever been. The recent run up in the US$ exchange value will only make it worse.
We have a trade deficit because we are the world's reserve currency, and other countries horde our dollars to boost their economies.
Isn't it funny how that works? They purchase US treasuries so they can run a trade surplus with us, which boosts their economies. Meanwhile ours goes to crap. And our "leaders" have been supporting this policy for 40 years!
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We do not have a trade deficit because the value of our dollar is too high, and honestly limited foreign dollar hording would probably be a good thing for our economy, not trashing the value of the dollar.
There is no evidence or logic that supports your view. It really isn't that esoteric. A little basic sense and simple addition and subtraction will suffice. If that doesn't work, then look at the data for what has happened to US wages and debt over the last 40 years.
I just saw a Goldman Sachs report where they predicted the Euro could go to .8 to the usd by 2017. That might be catastrophic to US companies that export but a boon to cmopanies like BMW & Mercedes.
Except if you buy one of their SUVs, which are made in Alabama and thus have significant USD costs baked into the price.
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