Entries Tagged as 'dollar'

King Dollar

David Frum November 22nd, 2011 at 9:18 am 19 Comments

Remember all the laments about the weak dollar? The demands for tighter policies to strengthen King Dollar?

On a trade-weighted basis, the dollar has been strengthening all fall. As of this week, the dollar has returned to its 1997 value.

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Beck Didn’t Warn Me Gold Can Fall!

September 27th, 2011 at 12:13 am 76 Comments

The gold market meltdown — with prices plunging in recent weeks from over $1, healing 900 an ounce to under $1, seek 600 — is a reminder that the precious metal is a volatile, speculative commodity. It also signals a bear market in credibility for the many right-leaning cable-news and talk-radio hosts who have touted gold relentlessly in recent years as a hedge against economic calamity.

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Still Sound as a Dollar

September 23rd, 2011 at 2:32 pm 22 Comments

Conservatives nowadays routinely worry about the dollar’s strength and stability. The dollar, tadalafil however, illness refuses to cooperate. Instead, malady it lately has been rising in foreign-exchange markets, as it typically does in times of international economic and financial stress.

The dollar serves as a safe haven. Investors tend to transfer funds into dollar-denominated assets, such as U.S. Treasuries, at moments when financial markets around the world are being buffeted. This occurs even if the U.S. economy is not in good shape. As long as the dollar and dollar-denominated assets are seen as relatively safe, the dollar will tend to strengthen in times of trouble.

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Don’t Fear the Dropping Dollar

April 23rd, 2011 at 6:33 pm 66 Comments

There’s been a lot of talk in the media over the dollar’s recent decline. In itself though this shouldn’t be an intense worry.

A strong currency makes imports cheaper (good for consumers) and lets U.S. firms buy companies overseas (a mixed blessing since many US firms seem to look for prestige assets rather than good investments).

A weak currency, on the other hand, increases exports (good for workers and wages), increases foreign investment (also good)  and tends to encourage U.S. companies to invest at home (mostly good although it has the potential to make them lazy).

Since consumers and workers are mostly the same people, this tends to mean that a strong (or weak) dollar by itself has rather little day-to-day impact. Within the range that the dollar has typically moved, its periods of strengths and weakness relative to other currencies have tended to correlate only weakly with the underlying strength of the US economy.

In the current situation, in fact, a weak dollar may actually be a good thing right now.  The low interest rates that are driving it encourage investment and the dollar’s own weakness encourages export driven jobs.

Even an uptick in inflation would be welcome at the moment given that it would help upside-down homeowners and thereby increase labor force mobility.

All this said, many of the things underlying the dollar’s current weakness–the size of the budget deficit and threat of a credit rating downgrade–are real worries.

Strengthening the dollar per se shouldn’t be a major public policy goal. But actions that, in the long run, would tend to strengthen the dollar do make a lot of sense.

A Jobs Summit that Works

David Frum November 30th, 2009 at 10:16 am 47 Comments

Good for Newt for calling his own.

Here are some things we should be talking about:

1) A 5-year extension of the Bush tax cuts. This is no time to be raising taxes. While the ideology of the governing party rules out making the Bush tax cuts permanent, economics tells us that short extensions do no good at all. Shoving off the expiration date from 2011 to 2013 will make no difference. Five years at least. There will be time in the next administration to think through the revenue reforms we need to achieve budget balance in future: consumption taxes or energy taxes, not taxes on saving, work and investment.

2) Military re-equipment. Our John Guardiano has been arguing here that re-equipping the armed forces after a decade of exhausting war can provide stimulus to some of the economy’s high technology sectors, badly battered by the collapse in business investment. We’re hearing a lot of 1930s analogies these days. Consider this one: the FDR bill that had the most dramatic impact on employment was his Naval bill of 1938, a then-astounding $1 billion for new ships and naval aircraft. That money helped pull the economy out of the “second depression” of 1937. A military capital budget could help sustain both employment and necessary rearmament over the difficult months ahead.

3) An exchange rate deal. The dollar has declined against the yen and euro, as it needs to do. Through complex central bank operations, China has thus far managed to push its currency down in tandem with the dollar. This is good news for Chinese exporters: their goods stay cheap in American stores. But for everybody else in China, the currency decline implies inflation ahead: Unlike the recession-struggling U.S., China is growing and super-abundant liquidity translates into asset bubbles and soaring consumer prices. In its own interest, China needs to revalue its currency sooner or later. Trade inducements from the U.S. might help nudge that decision forward to “sooner.”

4) An immigration slowdown. The job growth of the past year heavily disproportionately benefited immigrant rather than native-born labor, as economist Ed Rubinstein has shown.  Federal stimulus dollars are headed toward immigrant-heavy sectors: construction above all. Given the especially appalling unemployment numbers among young black males, we need to be acting decisively to ensure that U.S. taxpayer dollars provide relief to U.S. nationals.

5) Avoid direct federal job creation. These programs become dead ends: see especially the sorry history of the Comprehensive Employment and Training Act. Created in 1973 to expand a program created in the Kennedy administration (!) to help workers displaced by automation (!!), CETA rapidly devolved into a permanent holding tank for lightly committed workers.

6) TARP 2. I know, I know: everybody hates TARP. But 14 months after the Lehman crash, credit remains ultra-tight, in great measure because the books of banks and other lending institutions are clogged with bad debts. Inability to produce a plan to clear these bad debts remains failure 1 of the Obama administration domestic policy … a better TARP remains today as it has always been a prerequisite for rapid recovery. Otherwise we are in a Japan-like situation of hoping that general economic improvement will turn bad assets into good. That can happen too, but it takes time – and nobody should wish to dawdle.