Originally posted by: alexruiz
Originally posted by: rahvin
Why did you dredge up this dead thread? ChicagoMaroon provided a couple nice points on why this thread is waist deep. Dollars and Euro's are valued on the international markets. The value of the dollar goes down and US products become cheaper on international markets. Cheaper US products lead to increased consumption of those products and growth of the american economy. Growth of the US economy leads to a higher GDP and stronger financial position and will increase the value of the dollar on the open market.
You people act like if they start using Euro's for international transactions that suddenly the dollar won't be accepted. The fallacy of that arguement is stagaring.
Well, I don't even know how to start the reply here..... you give a very broad concept without going into NUMBERS.
I said many times that the key here is the
commercial balance. A weaker dollar will bring down the cost of things made in the USA IF and ONLY IF the transaction is done in a stronger currency. If your trade remains in dollars, there is no effect. However, if the other nations wants to trade using EUROS, then the exchange rate starts to play. A weaker dollar compared to the EURO means your euros can buy more things in the USA...... BUT, there are several BIG BIG problems here:
1) To take advantage of the devaluated dollar, your commercial balance MUST be positive (selling more than you buy, trading in stronger EUROS, therefore more dollars for the euros....) Right now, guess what is the country with the largest commercial deficit......
2) In order to reverse the role of being the largest importer and become a strong exporter, other countries MUST want what you sell. To make it an attractive purchase, it needs to be cheaper, made with better quality or cover very specific segments of target markets (needs or people).
3) The largest trading partners of the USA are Canada, Mexico, Japan and China. The USA has trade deficit with ALL of them. In order to reverse the trend of the deficit, it is not as easy as saying "USA products are cheaper on international markets" Cheaper than what??? Cheaper than they used to be before?? or cheaper than COMPARABLE products from other countries??? Cheaper than they used to be before, sure! Cheaper than the competition, well, maybe not.
4) A bigger GDP doesn't always mean a stronger currency (hint, compare Japan and Germany..... Japan has a larger GDP, but there is no way you can tell me that the yen is stronger than the euro, or even the former Mark.... do you??) There are many more factors associated to the exchange rate, being the most important the perceived demand for the currency. The perceived robustness of a country is also important (inflation, exployment rates, productivity, commercial balance, security and stability, ) When a country keeps buying more than what it sells, there is no way its currency will appreciate
5) In order to make those products cheaper, it is usually required not only a change in exchange rate, but also in PRODUCTIVITY. If you haven't visited a plant in the USA that employs union workers, please do so...... the visit will be very didactic.
I insist, the commercial balance is KEY here..... and the only way to change it is with COMPETITIVE ADVANTAGE (try to read what Michael Porter, a very respectable source from Harvard graduate school of business has to say.....)
Alex