U.S. Economy’s Surprise Risk

[Adams200]

The surging value of the U.S. dollar promises new bargains for American consumers and travelers but also presents big threats to the U.S. economy — in a trend that is shaping up to be one of the most unexpected and significant factors driving the global economy this year.

The dollar ended Wednesday at its highest value — $1.05 — against the euro in 12 years, and many analysts expect it to become more valuable than the common European currency in coming days. Other currencies have also taken a slide, making overseas travel cheaper for Americans, but goods and services priced in dollars more expensive for foreigners.

http://www.washingtonpost.com/busin...61fcfa-c817-11e4-a199-6cb5e63819d2_story.html

Surprise? Really? Who is surprised? Well, actually, there is no such thing as a perfect economy. And I'm still waiting for the German auto makers to cut their prices.

 

[realibrad]

The surging value of the U.S. dollar promises new bargains for American consumers and travelers but also presents big threats to the U.S. economy — in a trend that is shaping up to be one of the most unexpected and significant factors driving the global economy this year.

The dollar ended Wednesday at its highest value — $1.05 — against the euro in 12 years, and many analysts expect it to become more valuable than the common European currency in coming days. Other currencies have also taken a slide, making overseas travel cheaper for Americans, but goods and services priced in dollars more expensive for foreigners.

http://www.washingtonpost.com/busin...61fcfa-c817-11e4-a199-6cb5e63819d2_story.html

Surprise? Really? Who is surprised? Well, actually, there is no such thing as a perfect economy. And I'm still waiting for the German auto makers to cut their prices.

I will explain why you are wrong about thinking this is a bad thing.

Its incorrect to think that a high dollar is bad for the US economy. It can be, but its not inherent to bad or good. So to say its a surprise risk is wrong. If the reason the dollar is so strong is because we have seen an increase in the value of the US economy without an increase in the money supply, then its a sign of good. This will mean we can buy more things with the money we already have. We will spend our money on many things, but we for sure we will buy things that increase our productivity as well. That would compound our wealth even further, so a good thing.

If the dollar is raising because the money supply has been decreasing then, it might slow down the velocity of money, and that can be bad. If you look at the policy of the Reserve, we have been printing lots of money, so its not likely the case that the money supply has been decreasing.

The statement that the article makes is flat out wrong because it makes it seem like its always the case.

When the dollar is strong, it is easier for Americans to buy foreign goods and harder for foreigners to buy things from America. That usually adds up to a decline in net exports and lower overall growth for the economy.

It might mean fewer exports, but more imports. Increased resources in the US from purchased goods means increased productivity and even more goods.

 

[Mxylplyx]

So is this what a debased currency looks like?

 

[blastingcap]

So is this what a debased currency looks like?

Others have debased their currencies even more, or have other issues. With the Euro, there is nervousness about Greece and Ukraine (since Ukraine's biggest creditors are in Europe and Ukraine is likely to default). If there is a Grexit, that may promote a catastrophic chain reaction because its biggest creditors are EU countries, including highly indebted ones that were depending in part on making money on things like Greek loans.

 

[crashtech]

A currency's stability is probably more important than its value relative to other currencies.

 

[Mxylplyx]

Others have debased their currencies even more, or have other issues. With the Euro, there is nervousness about Greece and Ukraine (since Ukraine's biggest creditors are in Europe and Ukraine is likely to default). If there is a Grexit, that may promote a catastrophic chain reaction because its biggest creditors are EU countries, including highly indebted ones that were depending in part on making money on things like Greek loans.

I was being facetious. We've been hearing for years that the quantitative easing policy of the fed was going to debase the dollar and turn us into a banana Republic. In hindsight, it dropped the value of our currency at the perfect time to boost exports, and now as our economy is finally undergoing a strong recovery we get to enjoy the fruits of a strong currency. The federal reserve deserves major credit for how they handled this past recession.

It boggles my mind that there are still people who believe Europe's infatuation with inflation and budget deficits during the early years of the recession was the correct policy course when their economy is now in the shitter. It's unfortunate that real world observations take a back seat to ideology these days.

 

[First]

Strong dollar may be bad overall on net, as US exports have really helped juice the GDP numbers, so we could definitely see a hit there. And that growth hit might scare some investors and confidence away in the underlying recovery, even though the jobs numbers and the (slowly but surely) improving wage numbers are impressive. So as long as people are properly adjusting GDP numbers going forward (looking at GDP minus trade), things will continue to look positive.

Btw, do inflation hawks from 2009 and QE deniers have anything to say now? Any Austrians wanna pipe up about the dire predictions of severe inflation or hyperinflation that have almost literally been 180 degrees wrong? Is that line of thinking finally going to be abandoned? Because the silence coming from the strong dollar scolds these past 6 years has been deafening.

 

[BoberFett]

Strong dollar may be bad overall on net, as US exports have really helped juice the GDP numbers, so we could definitely see a hit there. And that growth hit might scare some investors and confidence away in the underlying recovery, even though the jobs numbers and the (slowly but surely) improving wage numbers are impressive. So as long as people are properly adjusting GDP numbers going forward (looking at GDP minus trade), things will continue to look positive.

Btw, do inflation hawks from 2009 and QE deniers have anything to say now? Any Austrians wanna pipe up about the dire predictions of severe inflation or hyperinflation that have almost literally been 180 degrees wrong? Is that line of thinking finally going to be abandoned? Because the silence coming from the strong dollar scolds these past 6 years has been deafening.

As has been said before, the money flowed in asset values. The wealthy are making more money than ever and everybody else is just treading water. It's not consumer inflation, but the wealth gap has grown significantly thanks to Fed policy.

Are you really going to chalk up making the ultra wealth even more wealthy as a win for Team Blue?

 

[First]

As has been said before, the money flowed in asset values. The wealthy are making more money than ever and everybody else is just treading water. It's not consumer inflation, but the wealth gap has grown significantly thanks to Fed policy.

Are you really going to chalk up making the ultra wealth even more wealthy as a win for Team Blue?

Well it's a win for everyone, not just the rich. Given that QE resulted in or certainly was a huge part of keeping core CPI extremely stable while also helping to push up asset values, that didn't only benefit the rich but unquestionably juiced middle class income earners with homes (whose value recovered) and those with 401k plans (50M+ people last I checked). I find it impossible to claim that there was a superior middle class alternative to QE, other than more fiscal action, which of course is entirely a Congressional dysfunction issue and not a policy issue.

 

[First]

In terms of the wealth gap, again, while I certainly don't support increasing that gap, it's impossible for me to say there was a better way to have reduced it since 2009, in terms of monetary policy. We could have done a ton more on the fiscal policy side, like rewriting the tax code and making it more progressive.

Also, lots of corporate cash is still on the sidelines, used for stock buybacks or collecting interest, which is a big reason inflation is barely above 1% incidentally. But once it gets put to use at historically normal levels, you can expect even more wealth for people, not just the rich.

EDIT: But bober, you and I both know what was being said in 09 and even as recently as 2011 and 2012; severe inflation around the corner, that QE was going to have some sort of perverse economic repercussions. After 6 years, that simply can't be argued frankly. 6 years is a lot of data. If the next let's say 4 years are apocalyptic, I'll certainly adjust my worldview.

 

[Jhhnn]

As has been said before, the money flowed in asset values. The wealthy are making more money than ever and everybody else is just treading water. It's not consumer inflation, but the wealth gap has grown significantly thanks to Fed policy.

Are you really going to chalk up making the ultra wealth even more wealthy as a win for Team Blue?

The FBR is the reason that so many are still able to tread water.

 

[Jhhnn]

In terms of the wealth gap, again, while I certainly don't support increasing that gap, it's impossible for me to say there was a better way to have reduced it since 2009, in terms of monetary policy. We could have done a ton more on the fiscal policy side, like rewriting the tax code and making it more progressive.

Also, lots of corporate cash is still on the sidelines, used for stock buybacks or collecting interest, which is a big reason inflation is barely above 1% incidentally. But once it gets put to use at historically normal levels, you can expect even more wealth for people, not just the rich.

EDIT: But bober, you and I both know what was being said in 09 and even as recently as 2011 and 2012; severe inflation around the corner, that QE was going to have some sort of perverse economic repercussions. After 6 years, that simply can't be argued frankly. 6 years is a lot of data. If the next let's say 4 years are apocalyptic, I'll certainly adjust my worldview.

Stop making sense. Just stop it.

 

[Vic]

So is this what a debased currency looks like?