Comments on: What Do We Do About the Dollar? http://www.frumforum.com/what-do-we-do-about-the-dollar Building a conservatism that can win again Sat, 11 Feb 2012 17:50:44 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: the natives are restless » Blog Archive » Sunday mish-mash http://www.frumforum.com/what-do-we-do-about-the-dollar/comment-page-1#comment-74671 the natives are restless » Blog Archive » Sunday mish-mash Mon, 30 Nov 2009 20:49:37 +0000 http://www.frumforum.com/?p=16261#comment-74671 [...] Frum, black-sheep conservative, on the Dollar debate and an intriguing health care [...] [...] Frum, black-sheep conservative, on the Dollar debate and an intriguing health care [...]

]]> By: James Cody http://www.frumforum.com/what-do-we-do-about-the-dollar/comment-page-1#comment-72994 James Cody Thu, 19 Nov 2009 18:41:00 +0000 http://www.frumforum.com/?p=16261#comment-72994 I would argue, with all due respect, that this post largely misses the point. As I understand things (which might be entirely incorrect), about 30 years we basically decided (unofficially of course) that we were going to have massive tax cuts, maintain high spending, and not worry about the American consumer spending more and more and saving less and less. The problem is, that's impossible without huge government deficits and hence high interest rates. Unless, of course, the Japanese, Germans, Middle East, Chinese, or someone or anyone from some other part of the world, is willing to buy our government bonds. Well, how do you achieve that? A strong dollar, which then gives us a large domestic trade deficit and Japan, China, Germany, the Middle East, etc, the large trade surpluses they seek. And what will the foreign countries do with their large trade surpluses? Buy American bonds, of course, which keeps our interest rates low and enable this whole scheme to carry on. So there you have it, the world's most important international treaty, except it's not written down anywhere, it's not official, and no one dares to utter its name (except for economists, who call it "Bretton Woods II"). Furthermore, as I understand it, this strong dollar policy has led to significant global financial imbalances and, arguably, contributed to the financial crisis (because the U.S. became so debt dependent). And, as I further understand it, most economists believe that a slow unwinding of the dollar's value, and appreciation of Chinese currency, is necessary to resolve these global balances. So I would respectfully contend that your post misses the main issues and addresses a sideshow. And I would say that the WSJ and others with their strong dollar, gold fetishes are missing the point. It's not that Obama (secretly) or various economists (openly) are calling for a weak dollar. They are basically calling for no dollar policy. No strong dollar policy, no weak dollar policy. Just let the dollar be. And equally important, the dollar must stop being the world's currency reserve. The immediate result of that is a dollar decline, because the dollar is so wildly overvalued right now. That this will likely help the economy (through boosting exports) and increase our manufacturing base are simply side effects (the former which coincidentally happens to be quite beneficial at this particular time). And then, without those trade deficits and foreign purchases of our bonds anymore, Americans will have to save more, and taxes will have to go up, and spending will have to go down, and then the budget deficits will be reduced, and imbalances in the global economy and our domestic economic will be addressed. It's truly amazing listening to and reading conservatives be in such a panic over the declining dollar when they appear to be totally clueless as to why the dollar is so high to begin with, why the dollar must come down, and why the strong dollar is a key reason for why we have large deficits and a large debt and the Chinese buying our bonds (which the conservatives so fear, without even knowing why it's happening). I would argue, with all due respect, that this post largely misses the point. As I understand things (which might be entirely incorrect), about 30 years we basically decided (unofficially of course) that we were going to have massive tax cuts, maintain high spending, and not worry about the American consumer spending more and more and saving less and less. The problem is, that’s impossible without huge government deficits and hence high interest rates. Unless, of course, the Japanese, Germans, Middle East, Chinese, or someone or anyone from some other part of the world, is willing to buy our government bonds. Well, how do you achieve that? A strong dollar, which then gives us a large domestic trade deficit and Japan, China, Germany, the Middle East, etc, the large trade surpluses they seek. And what will the foreign countries do with their large trade surpluses? Buy American bonds, of course, which keeps our interest rates low and enable this whole scheme to carry on.

So there you have it, the world’s most important international treaty, except it’s not written down anywhere, it’s not official, and no one dares to utter its name (except for economists, who call it “Bretton Woods II”). Furthermore, as I understand it, this strong dollar policy has led to significant global financial imbalances and, arguably, contributed to the financial crisis (because the U.S. became so debt dependent). And, as I further understand it, most economists believe that a slow unwinding of the dollar’s value, and appreciation of Chinese currency, is necessary to resolve these global balances.

So I would respectfully contend that your post misses the main issues and addresses a sideshow. And I would say that the WSJ and others with their strong dollar, gold fetishes are missing the point. It’s not that Obama (secretly) or various economists (openly) are calling for a weak dollar. They are basically calling for no dollar policy. No strong dollar policy, no weak dollar policy. Just let the dollar be. And equally important, the dollar must stop being the world’s currency reserve.

The immediate result of that is a dollar decline, because the dollar is so wildly overvalued right now. That this will likely help the economy (through boosting exports) and increase our manufacturing base are simply side effects (the former which coincidentally happens to be quite beneficial at this particular time). And then, without those trade deficits and foreign purchases of our bonds anymore, Americans will have to save more, and taxes will have to go up, and spending will have to go down, and then the budget deficits will be reduced, and imbalances in the global economy and our domestic economic will be addressed.

It’s truly amazing listening to and reading conservatives be in such a panic over the declining dollar when they appear to be totally clueless as to why the dollar is so high to begin with, why the dollar must come down, and why the strong dollar is a key reason for why we have large deficits and a large debt and the Chinese buying our bonds (which the conservatives so fear, without even knowing why it’s happening).

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