Blogs and Stories
Obama's Secret Jobs Plan
Pete Souza / The White House
The dollar plunges! How scared should we be? Economist Simon Johnson says not as much as you think—it’s part of Obama's plan to restart the manufacturing sector and win the midterm elections.
The dollar’s value plunged Tuesday, while gold simultaneously hit a record high ($1,045 per ounce). You might think this would worry the administration and send the Treasury secretary to the microphones in an attempt to head off further collapse in the currency. Do the darkest days of the Carter administration loom again, with inflation and unemployment both rising, apparently without limit?
Far from it—the last few weeks of dollar depreciation is an amazing stroke of luck for the Obama administration, admittedly facilitated by their adroit maneuvering in the corridors of high international finance. If it lasts—and they need some more luck—this could save the midterm elections for the Democrats.
Japan, France, Germany, and Italy all worry about a weak dollar. The U.S. officials, at the highest stakes poker table in the world, faced them down.
The near-term causes of the latest round of dollar decline are obvious. Australia’s central bank raised interest rates slightly on Tuesday. By itself, this would not be an exciting development, but it comes fast on the heels of the G-20 Pittsburgh summit in which all participants (including Australia) seemed to imply that “tightening monetary policy” (i.e., raising rates) was some way off.
So if Australia begins to tighten—an implication that its economy is picking up—market participants reckon that more commodity producers and other parts of the Pacific Rim will soon feel the need to do likewise. At the same time, the U.S. has signaled—most recently on Monday, in the powerful form of William Dudley, president of the New York Fed—that interest rates here will remain low for the foreseeable future.
If you can borrow in dollars and buy Australian (or Korean or Chinese, etc) government debt, you are in what is known as a positive “carry trade”—because of low interest rates here, you pay close to zero to borrow the dollars (e.g., if you are Goldman Sachs and have unfettered access to the Fed’s discount window) and you can invest in Australia at more than 3 percent interest (or you can plunge into speculative Chinese automotive stocks, as Goldman is now doing).
And if you think interest rates will rise in the rest of the world before they do in the United States, because the dollar is on its way down, then this carry trade becomes a one-way bet: You make money on the carry, you hold foreign currency while the dollar falls, and then you pay back your loan in depreciated dollars.
If the U.S. were concerned about the dollar weakening—say, because of its impact on inflation—it could counteract all of this by making warning noises about potential intervention in the currency market: If you borrow heavily in dollars to lend in Chinese renminbi, you can be easily rattled by the prospect that G-7 industrialized nations will intervene in a coordinated manner to strengthen the dollar (as they have in the past).
But the G-7 met this weekend and made no statement about the dollar—despite what must have been considerable pressure from Japan, France, Germany, and Italy, all of which are always worried about a rapid weakening of the dollar because they are so dependent on exports. The U.S. officials, at the highest stakes poker table in the world, faced them down.
The key reason why the U.S. can do this is simple: We’re not currently afraid of inflation. In fact, the administration and the Fed are rather more worried about deflation (falling prices), so it doesn’t matter to them if a weaker dollar pushes up prices to some degree.
This may, of course, turn out to be a miscalculation, but think what a weaker dollar does for the industrial heartland, where so many congressional seats will be in play and where today it’s easier to export or compete against imports because the same dollar costs convert into fewer euros, yen, or renminbi (this is what a “weaker” dollar means—foreigners can more easily afford our goods and their stuff is more expensive to us). If the dollar stays weak or declines further, our car companies, machinery makers, and turbine blade manufacturers will soon be rehiring and we’ll finally get some job growth as part of our sputtering economic recovery.
A weak dollar traditionally bothers our financial sector and they have enough political clout to bring on exchange-rate intervention. But the remaining big Wall Street firms have made out like bandits over the past 12 months—and they are perfectly positioned to make another ton of money from the carry trade. In fact, they’ll happily drive the dollar down further.
Sure, inflation may come back sooner than the administration would like—and here the increase in the price of gold is flashing a potential orange warning sign. But, the official thinking likely goes: We’ll deal with that after the midterms.
Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
How Rich People Smoke Pot
Paul Schrodt is a writer living in New York City. He has contributed to New York magazine, Radar, and Esquire.com.
Justice Clinton?
As vice chairman of Public Strategies and president of Maverick Media, Mark McKinnon has helped meet strategic challenges for candidates, corporations and causes, including George W. Bush, John McCain, Governor Ann Richards, Charlie Wilson, Lance Armstrong, and Bono. McKinnon is co-chair of Arts & Labs, a collaboration between technology and creative communities that have embraced today's rich Internet environment to deliver innovative and creative digital products to consumers.
Bernanke on the Hot Seat
Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
Why Citigroup's Going to Take the Fall
Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
The Bonus Boomerang
Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
seang1
Driving down the purchasing power of the US consumer and destroying foreigners confidence in our asset markets in the hopes that a weaker currency will increase exports and offset the negative consequences from a devalued currency is inanne.
A weaker currency does nothing to address the barriers to entry that are present in every current account surplus country and risks a rise of protectionism from others who try to protect their exporting industries.
Didn't James Baker try this and the result was the crash on October '87.
Exports are a real cost while imports raise our standard of living.
Our asset markets are in for a shock if the administration really is persuing this policy.
kateyras
That was while Americans thought they could just spend their way to happiness. Cheap Imports have RUINED this country, making our citizens crazy with materialism. 25 and 30 pairs of shoes! Crazy, stupid, greedy accumulation of more and more cheap stuff, rather than investing in fewer, better quality goods. All the while playing monopoly by going along with the ponzi scheme that Wall Street morphed into. This is a GOOD plan. We need to save more, spend less on imports and MAKE STUFF HERE!!!
Carole65
Agree with you, kate. When I visit my childhood home in central PA, there's a large population of Amish. They brought an economic boom to the area when they came from Lancaster, PA to Sugar Valley, PA by buying the farms that the families in the area no longer wanted. I always envy their simplicity and independence.
Embers
Protectionism can be a good thing. We need the jobs here. Maybe you don't, but many others do.
Charlemagne712
hey did you notice that thing you said about barriers to entry and countries with surplus assets being related...heres an idea, fewer imports, higher tariffs, and how about some sort of regulation on the % of assets and labour that occurs in the US for a company to be called an America company.
MrFabulous
"Exports are a real cost while imports raise our standard of living."
Oh, that makes sense.
kilroy
Does the GOP (or for that matter - ANY political party...) have even the slightest interest in the real health of the US and its citizenry or is it all about political posturing and attaining power and whipping up the Plebs? Blaming Obama on the weak dollar makes no sense at all.
for a non BS portrait of reality, I commend the following:
http://tinyurl.com/ygsdqn5
neverlate
Your article comes off as much too jolly about a very sad situation. Also, this is not a strategy by the Obama Administration, but the inevitable results of being a beggar nation.
AlanD2
neverlate: You're right. We cannot borrow forever and expect the dollar to hold its value. We are seeing the result of $9 trillion in borrowing by Reagan, Bush 41, and Bush 43. Plus a few trillion more by Democratic Presidents.
Obama's deficits, although necessary, further contribute to this mess.
theoPitt
Our Government has been overspending my entire life. Why do you, Alan just name Republican Presidents? You do know that the Democrats held the majority in Congress for 50 years before Clinton, right? You do know that even though Clinton had budget surpluses in his final years, the national debt increased under him too? Right? You do realize that the years when Clinton did have a budget surplus, the house and the senate were run by Republicans, right? Bush 43 did a horrible job controlling spending, but you do know that the Democrats controled the house and Senate in his final two years, right?
And now you call Obama's deficits necessary. Give him a pass, huh?
estcruzer
It's interesting how much the message was about the benefits the adminstration will reap but did you notice "A weak dollar traditionally bothers our financial sector and they have enough political clout to bring on exchange-rate intervention. But the remaining big Wall Street firms have made out like bandits over the past 12 months". In this case Finance's and Manufacturing's and Democrat's "best interests" all line up - in the short term. This is another example of allowing short term thinking to drive policies that will have long range impacts = the same thing that just about killed our world financial infrastructure.
It would be a more interesting article if it covered the long term effects of this short term policy.
gak001
theoPitt, while Alan didn't name names, he certainly acknowledged a democratic contribution to debt. The fact of the matter is the national debt was relatively stable after WWII but didn't skyrocket in real terms and in terms of GDP until Reagan. It peaked under Clinton and actually started a sharp decrease toward the end of his term, but as soon as Bush took office, it started to skyrocket again.
Here's a nice graph to make it easier for you:
http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms
Obama's deficits are necessary because deficit spending is necessary during a recession. If you need proof, look at the Great Depression and the effects of Congress's reluctance to engage in deficit spending. Now, if Obama and Congress continue spending at this rate after the recovery, then we have a serious problem. But the Republicans can't seriously claim to be fiscal conservatives with a straight face after the last three decades.
I think the big problem with Republicans is they'd rather push through tax cuts than spending cuts. If Democrats are tax and spend, then Republicans are surely borrow and spend - I'll let you decide which is more fiscally responsible. The biggest problem is the belief in the bunk Laffer Curve, which basically says that, at a certain point, lowering the tax rate will increase tax revenues. This has never happened in the US, even under the ridiculously high Eisenhower tax rates.
neverlate
Frenchy - you may want to read the Constitution
Congress is the only institution that has the right to tax and spend. As a matter of fact, Reagan, Bush or any other president cannot spend a dime unless it is appropriated by Congress. The fact is that in most of those years we had a Democratic Congress refusing to do anything about the run away entitlement programs. As far as Clinton is concerned, he had Alan Greenspan giving away money, which looked good back then, but is the genesis of the problem we have today.
I, like you, was very dismayed with Bush Jrs lack of fiscal discipline (I will give you that one), but the rest belongs to a political class that panders to the american public to get votes. The latest being, that they can cover all americans (health care) and decrease cost at the same time. I know from your past posts that you have bought into that lie completely.
alencharlesreport
With the move toward making the IMF the central bank for the world the ability to borrow money by selling Treasure Notes to countries like China, Russia and others with reserves are going to be more difficult. China recently purchased about $50 billion in SDR bonds and others will follow quickly. The Dollar's position as the reserve currency could very well be replaced with SDR from the IMF. If this happens the devaluation of the dollar is absolutely going to continue and everything you mention about the results of this will be multiplied. I look for a requirement of America's cutting military spending or foreign moneys could be cut off from buying more of the debt.
When Carter finished his term, the national debt was between 700 and 800 billion dollars, when Reagan finished it was 5.7 trillion or you could say that in eight years he spent five trillion more than he received taxes to pay for it. He also raised FICA taxes and used the surpluses from this tax hike to pay for his cuts in the upper levels of income taxes. Bush senior had so much off budget spending that the two Clinton years surpluses were used to pay Bush's off budget debts that had come due so Clinton did not actually pay down any of the on budget debt during his years of surpluses. Bush jr. to use the language of John McCain spent like a drunken sailor as well as cutting taxes for the wealthy especially those on Wall Street that mostly pay on capitol gains and not as earned income like working class folks which means no FICA withholding for them and no more than 15 percent.
A devalued dollar would be take awhile to adjust to, but I agree in the long run it would certainly help reestablish our manufacturing sector and provide jobs for our working class. The overpriced everything in our country could be re-adjusted to be more inline with other developed nations and more competitive with China and India.
diamondgirl
So in the mean time, as stated in this article their plan is to have jobs by MID TERM ELECTIONS. All I can say is OH MY GOD, what about all those poor people who have had their lives destroyed by this plan of the administration. The sad part is they will never know what they are planning and they will love him anyway. This HUGE EGO has a lot of splainin to do in my opinion...I can't believe this writer put their plan in writing and didn't expect some Outrage,
Ah, but maybe that why he did it...You decide.
gak001
Selective reading. Do you have reading comprehension issues?
AlanD2
diamondgirl: Have you forgotten all the poor people who have had their lives destroyed by the Bush 43 administration? Like the 3,000 9/11 victims lost even though Bush had been warned of likely attacks? Or how about the 4,000 American soldiers lost in the Iraq war that Bush lied us into?
We will never know how many have died as the result of Bush's Great Recession, but I'm guessing at least tens of thousands.
And if you count economic destruction, the millions of homeowners who have lost their homes are a direct result of Bush 43's aversion to regulation and Republican policies such as the repeal of the Glass-Steagall Act.
diamondgirl
gak001, you have selective understanding, do you have comprehension issues?
diamondgirl
Alan, I have not forgotten those poor people who lives were destroyed by the Bush Amin. I am with you on that 100%. and the 4000 American soldiers lost in Iraq and the lies..
But there is plenty of blame to go around for the financial meltdown you just can't blame Bush for that.. to be honest I don't know anything about the Glass-Steagall Act. But I am going to check that out.
I do know that Bush tried to put a bill regulating Fannie/Freddie and Obama pulled a filibuster to block it from going to the floor. You should check that out.
gak001
diamondgirl: I know you are but what am I?
Embers
The song "diamondgirl" has got to be the suckiest song in existence. Is there actually a suckier song in existence? I'm interested to hear others' opinions on this.
oliverckerr
The following is from an essay on genuine long term jobs by Michael Stephen Levinson
You will also find the sea top pollution solution here.
"In December, 1995, Time Magazine's Richard Stengel gave me a one liner in his article, "Look Ma, I'm Running," a piece about unknown candidates for president in New Hampshire.
I proposed building ten thousand clipper ships for a jobs program, but Stengel left out my concept of college students paying lesser tuition for crewing the ships, "sew" with or without a cargo, the clippers generate money, and pay for their building carrying cargo.
We could say to any country, we will take all of your goods without tariff, as long as the goods come to us on our clipper ships. The students could inspect the cargoes as they are loaded, with state of the art detectors, so weapons of mass destruction, or contraband, won't be coming in on our ships.
My shipbuilding program creates meaningful steady work on the East Coast, Gulf Coast, West Coast, and the shores of Lakes Huron, Michigan, Erie, Superior, and Ontario, millions of jobs wherever there is water and people need work.
Which is better for the planet, fleets of clippers with semi-automatic computer controlled sails, or giant container ships three stadiums long with thirty-four crewmen? Any sea mammal, napping on the sea top is dead meat for these mammoth ships and what matter, with lobbyists stuffing the blubber down the throat of your district's I-must-be-reelected congressperson.
When my clipper ships come across hundred acre wide swaths of sea top with garbage floating everywhere, the "stew dent" volunteers will lower long boats with electric motors and rake the sea, bring the garbage aboard and, supervised by the captain, weigh it up, because the kids will be paid $100 a pound for time and trouble. This is a great way to "sea" the world and work your way through college. Harvard, their fleet, forty ships, will have an additional 1600 floating undergraduate seats to fill.
Mother Nature will shine on your good deeds. Her dolphins will jump the long electric motor boat bows in unison, as wild dolphins have been known to playfully jump the bows when their mood arises; the gentle Right whales and Sperms, in pods, will show off their kids, and let the kids hop on their backs for a sea top ride.
Whoops. I left out all that required slush money for your corrupt leader bleeders. The filthy money these Members of Congress require for their reelections was excluded from my bill of lading. Recollect lobbyist slush deregulated the financial industry, nearly sinking the world's financial house!
Handing over billions to the banks' sinkholes shows your whole congress is on the take. They all need to go.
"Sew" you won't be building any clipper ships because how to, you don't know, it's too creative, and the container shipper's lobby won't allow it. Expect instead your hollow Congress' derision, in your innovative ship building face. Of course you could build fleets of clippers without the government, the investment from the university endowments. Not-for-profit corporations, run by the universities whose students are the crew, can run the ships regardless, underbidding for a steady cargo, except for all your elected on-the-take bleeders blocking your way. Do not expect five million jobs without your Blagojevichite congress tithing your pay.
Upon election to the office of President of United States I will "sea" the ship building program gets done!
michaelslevinson.com
daveinboise
I must admit, your posting today are very interesting. Is this part of an overall campaign strategy for Mr. Levinson or your own idea. It is unique.
magicman
I certainly do agree that this is the current strategy, that it has been long overdue, but carries with it significant risks to economic life and limb. The swift transformation to a largely manufacturing economy will and must occur if budgets are to be balanced. A service economy is only tenable if there is a manufacturing base to serve. That piece has been missing throughout the bull market days of the dollar, rendering US Manufacturing nearly impotent as an economic engine for Job Growth. The reduction in the value of the dollar is actually a very positive development, but will come at a heavy price to all Citizens.
I have been pushing for the massive expansion of Utility and Electricity Production as the principle cure for this particular problem. It is a reverse dominoe theory which leads me to believe that massive increases in both the quantity, transportability and cost of electric power is the single key which will foster Job Growth, especially in the Small Business Sector. We need to slash input costs. Electricity provides the widest application and greatest benefit for the greatest number and therefore will yield the quickest results.
Aside from the obvious 'green benefits', Electricity is also portable and can be exported.
FPL Group in Florida is designing communities that run completely on solar power. This particular design will act to support housing prices, as well as create a much larger market for Utilities. It is one thing to supply a community with power, it is quite another proposition to actually transform the community with the use of electrical power. From Heat, Air Conditioning, Cars, and appliances, an abundance of electricity will reduce unit costs across all budgeting categories. This is a direct result of better design and will reduce cost and raise values substantially from current levels.
It will work.
Frenchmanaz
Magicman...your idea is obviously a positive one, but you only discuss the outcome and not how we are going to build the infrastructure required to accomplish your idea/plan. This economy needed to be taken out of the stall it's in yesterday. Your plan is something to look towards as a future plan.
Solar panels aren't cheap, even with financial incentives and shock of all shocks the biggest player in my neighborhood in AZ is our power company. There is no way they are going to simply walk away from a guaranteed paycheck every month from me. The alternative is to go private which last time I checked, for a ranch home like mine went for around $ 60- 80K. Ouch I don't have that and can't finance a car in that range, so can't do so for anything else but my house.
On the sell power side of things, who will pay for all of the infrastructure needed to do this on a mass scale ? How long will it take before we can sell all of this power for a profit ( ie after we have paid for the cost involved in setting up the infrstructure ) ?
Granted we already have an infrastructure in place to supply electricity but as far as I know only to sell it direct to the consumer ( homes, business etc ) If I not mistaken you are suggesting that we sell it internationally right ?
Maybe I am not understanding your concept. But..please don't get me wrong, I think it is a great idea and something to work towards once the ship is righted. Our future and right in line with Obama's hope for the US to lead in " green " technologies and ideas.
estcruzer
Clearly you understand the benefits. If we have choices between hiring folks to build this infrastructure and spending money on training them to be soldiers I vote for building the infrastructure. That goes for a lot of other alternatives - we clearly don't need to give any more money to the big financial institutions - they just give it away in bonuses to the folks that got them into trouble. There are a lot of things we don't need to spend money on, but jobs, global warming, energy independence these are just and laudable things to spend money on - thus supporting solar panel development is the right solution, one of them. Also, the more solar panels that are built the cheaper they will become - what do you think your $60k - $80k investment would cost in 10 years = if we support significant solar panel manufacturing development over the next 10 years? Especially if we diverted the money we are using to support big OIL into supporting Solar Panel development - think of the benefits, quiet cars, clear air and friends in oil producing countries.
diamondgirl
French, are you ok with all those people who are being sacrificed to make this so we can lead in "green" technologies?
Dont you think there should be a better way to not destroy what we have and attain the same goal? I am sure there is but Obama doesnt care about that he wants people to need him to do something, so when he does they are so thankful they will vote in his favor, as this article say in time for the 2010 elections.. OMG
djanimaequeen
diamondgirl
What is your solution? You seem to be doing alot of bitching. What would you recommmend?....thought so. Just blowing air out your ass like a typical rethuglican. Do you even understand the economic concepts being discussed? China has made a ton of money doing the very thing this author describes. If we devalue the dollar, it will made our goods cheaper hence people will want to buy our products which means jobs will be created. Americans have been getting by for too long making a bunch of money doing basically nothing with little to no education or training. Here's my idea, in the short term, trolls like you need to take your dumbass to school and learn something, get some skills, and get good paying job that requires those skills. Do you have a better idea? If not, then STFU.
Frenchmanaz
@ estcruzer, you are preaching to the choir, but if you read one of my posts below, the problem is gridlock in government. We should have been out of Iraq long ago ( we shouldn't have been there in the first place ), imagine the diversion of funds from that to these projects discussed here.
You are preaching to the choir. The problem however remains that we are stuck in the mud right now, how do we get out of that mud right now ? I think I was clear that I think that magic man's idea is spot on, so there is no need to sell me on the idea.
janet1003mn
Diamondgirl,
Did the fact that all the buggy whip manufacturers would be made obsolete -- and countless (by turn of last century standards, anyway) people be put out of work by the advancing auto industry at the turn of the last century stop the progress? No. That's because, if you actually BELIEVE in the free market economy (as I'm sure you'd adamantly claim), you'd understand that industries die all the time and are replaced by new industries that employ the people who were displaced by the death of their previous industry, provided they are courageous enough to live in the present instead of mourning their lost past, learn new skills, etc. Or, to put it in a way that is might be more palatable to you if you're representative of the majority of Republicans these days, "When God closes a door, He opens a window. Cha cha cha."
diamondgirl
Djanimaequeen,You said and I Quote "If we devalue the dollar, it will make our goods cheaper hence people will want to buy our products which means jobs will be created." Well who is the dumb ass now, we MAKE NOTHING IN US, we are consumers, that's why your idea is flawed big time. By the way how is that working out so far for this country? Unemployment is at 10%
We do need to re train and re-educate those who have been pushed out of the manufacturing industry so that this country can be competitive with the rest of the world. That means we cannot have unions pay huge salaries and benefits that will make us non competitive and destroy industries, e.g. Auto industry. These programs should have been in the Porkulus Bill passed and is still sitting there, ready to be spent on pet projects for those who got Obama elected. And now he wants to do something before the 2010 elections. He is a disgrace and most people know it, but you will never admit it or understand a word I just said, because you are so busy defending him, you have no idea what he is doing to our dollar or our country.
diamondgirl
janet1003mn, read my reply to djanemaequeen.
unbesteveable250
@diamondgirl, You claim the unions are the ones that make the manufacturing industry so uncompetitive. You're hypothesis only makes sense in a theoretical world. In your schemata, the abolition of slavery was a terrible economic policy. How could the South's economy continue grow at ante-bellum rates if they actually had to start PAYING for the labor?! Clearly Abraham Lincoln was not a true free-market capitalist. The truth is, American businessmen over the past 20 years sold our country out by undercutting labor through offshoring. "But those countries are being helped because we're putting money in their economy," you'll claim. Sure, but at the expense of the American working man. Bring the jobs back, pay a living wage, and stop the endless consumption culture. We cannot continue our lives as is. That's the sad fact we all must come to realize.
janet1003mn
Diamondgirl,
As a matter of fact, I just had a flood in my basement, ripped out the carpet and purchased three rugs at Target to go over the hard flooring we'll be installing in its place. All three rugs were MADE IN THE USA. Surprised? We do still make some things in this country -- and if we'd all break our addiction to the cheap CRAP Walmart sells and pony up for products made here instead, more manufacturing and therefore more JOBS might make their way back to our shores. Oh, that, and demanding our elected representatives implement some punitive financial measures against US-based companies that offshore their manufacturing. Just because other countries offer US companies the option to pay their citizens slave wages to make stuff doesn't mean we, the American people, should reward these US companies for making what they calculated was a "good financial decision," by continuing to support their business. I'm doing my part. You?
TwainsYankee
Diamondgirl.
According to the Department of Labor (sourcing the United Nations United Nations, National Accounts Main Aggregates Database, http://unstats.un.org/) citing 2005 data the U.S. accounts for 20.6% of the worlds manufacturing nearly 1.5 times that of the 2nd largest (Japan 13.3%) and over twice 3rd largest (Germany 8.2%). The aggregate combination of the EU-15 This link has an explanation of the calculation methods and links to the charts showing the worlds top manufactures: http://www.dol.gov/asp/media/reports/chartbook/2007-06/appendixa_manufactur ing.htm
diamondgirl
Twain, if you are correct, then why are the demograts saying we need to bring back manufacturing into this country? Its been a long time since I have bought anything that was made in the USA. I will look at the the web sites to see whats been made in the US
TwainsYankee
Diamond Girl: I did not write the report,So its not up to me if I am correct. However, why wouldn't democrats want to bring back manufacturing jobs? Doesn't the GOP? Its not that america does not produce anything (think silicon valley), its just that we used to produce more and different things and we need to create jobs for those workers who worked on jobs making stuff now made cheaper overseas.
Embers
diamondgirl, if people can't understand you it's because what you say is pure gibberish, nothing but catchphrases and faulty logic.
Man, that song sucks.
estcruzer
Think of the quiet, the clear skies, the independence to make friends of our Oil rich enemies instead of trying to control them...
exploora
And another reason why socialism doesn't work. Because as he undervalue USD, other countries which have commodity based currencies have a dollar which is stronger in comparison, and also a manufacturer sector they want to succeed to create jobs.
And it was only yesterday I went on about money disappearing in one's bank account.
And a few days ago I said hopefully Madoff's familly has its money in Euros.
As the Oil currency, and so many countries being pegged against it, Obama will be alienating alot of countries, I would guess.
estcruzer
A lot of countries that really don't care about Americans, A lot of businesses that really don't care about Americans, will definitely stop liking Obama. I guess them's the breaks.
sophia5
Is it wrong to think Wall Street is Anti-American ?
Do they really care about the American Worker as long as
formerly American factories overseas are churning along ?
I know it's a pipedream,
but if Obama offered American Businesses incentive to move some
formerly American factories and jobs Overseas . . . Back to the United States, or keep some from moving overseas,
it would be one of the greatest feats in presidential history.
What seems to be getting lost in this crisis is . . .
We don't make anything anymore.
Can we possibly survive as a country of paper pushers,
of " information movers ? "
TwainsYankee
Sophia
We actually make quite alot and more than any other country. The problem is we make less than we used to
daveinboise
Exploora,
Which countries are you talking about using the commodity base currency? The currencies discussed in the above article are currencies used by countries associated with socialist policies. So are you saying that socialism doesn't work because other socialist countries have a stronger currency and better manufacturing base?
exploora
I would think if the currency devalues enough, the national debt, in value, could grow out of control, exponentially, and it might be hard to catch up.
The real risks never seem to be shared with the public.
scott1607
Certainly never shared with, by always shouldered by...
AlanD2
exploora: Any devaluation of the dollar reduces the value of debt securities held by other countries, which actually benefits us. Unless, of course, it gets to the point where other countries refuse to support increases to our national debt.
Glenda1976
And if the Chinese & Japanese refuse to go along with this little scheme, I wonder if this Administration has a Plan B or have they thought out that far.
estcruzer
We can always patronize American businesses instead of buying chinese and other slave labor country products.
devilsadvocate
If the Chinese had to choose between writing off about a trillion dollars today by not buying anymore US debt, or continue to buy up to 10 trillion dollars of US debt in the future and risk not having that paid back, which option do you think they'd go for?
This user is no longer registered.
n--Y--grumpyguydiamondgirl
Alan, you are right for the first time, I believe it has gotten to the point where other countries refuse to support increases to our national debt. Look how China has us by the b@lls now. How much longer will they buy our debt? Its sounds like they are done now... So now what?
This is what Congress and this administration needs to pay attention to, thats why the other countries are looking to replace the dollar. We are playing chicken with our country here, not a good idea for the future..
exploora
Exactly. And then either more will possibly be borrowed or printed, and it can spiral, and then what? The securities could get dumped? The last people that seem to see the trend are the experts. I noticed that when I switched currencies in 07, the people at the bank are just given scripts to say, they don't even consider the cost to the holder of the currency. And they should. Currency is just like any other commodity.
exploora
And this is the risk Obama is taking. It could really backfire on him.
wolverine1987
If dollar devaluation is in fact a specific administration strategy (this article dies not prove the point) then our economy is screwed. No nation, ever, in world history, has prospered from devaluing the currency. Nixon, among others, tried it in the 70's--to disastrous results. It will mean high inflation and continued high unemployment. I hope wiser economic heads at the WH prevail.
Carole65
However, this is exactly what happened in the late 70's when hyper-inflation was created to pay for our petro debt with cheap dollars. So get ready for inflation and high interest rates
estcruzer
Another good reason to shut down and long term debt based on an index and margin.
djanimaequeen
Ummm China has. Do you even know what you're saying? The reason factories move overseas is because the cost to do business in other countries is cheaper. Devaluing the dollar makes it cheaper to do business here hence the factories come back along with, gasp, jobs!! Wow. You morons amaze me.
diamondgirl
djanimaequeen, who's the moron now, Those jobs are never coming back to the US, the tax laws are such, it makes no sense for them to ever do that. WOW I think you need to go back to school and read up on tax laws on big industries and why they move out of the country...
Daveparts
The notion that this is a srategy is laughable. Debase the currency to bring back manufacturing jobs? Akin to cutting your legs off to lose 40 lbs.
The rise in gold is a fear factor that the United States will not get its finacial house in order. European and Asian investors were quite upset that the US bailed out the banks without reregulating them. This allows the banks to continue to game the system while the economy lanquishes.
Frenchmanaz
I hear all kinds of complaints but please offer solutions as well. What do you suggest to fix what is broken, a solution that measures up to the magnitude of the problem. Cut taxes ? We are in crisis management mode and therefore need drastic solutions.
estcruzer
I heard regulating Banks and all Financial instutions and supporting your regulating body with strong teeth and plenty of legs and brains might help the long term health of our Financial industry.
barrett
Gold is at record highs', something like $1045/oz, and the price of gas is rising as the value of the dollar falls. Will export related jobs increase enough to offset job losses caused by higher oil prices? I guess we're about to find out.
roadhunter
Higher oil prices increase domestic jobs. When gasoline was at $4 per gallon, imports of products from China became so expensive to ship here that companies turned to domestic sources. Oil hitting $150 per barrel would be great for this country because this would also help the development of new industries related to sustainable energy.
diamondgirl
I will second that!
barrett
The more that's spent for gas, the less that's left for stores and restaurants. the fewer employees needed.
imapopulistnow
It is about time. We must accept a weaker dollar is necessary to balance our current account and repay our outstanding debts. Old money (inherited wealth) wants a strong dollar while a weak dollar creates new money (think Bill Gates). No nation ever has prospered? A would suggest Japan, Korea, China ...........
Frenchmanaz
@ Neverlate.." comes off much too jolly about a sad situation ", a statement more aptly applied to the glee shown by the right at our losing the Olympics. However, what you see as Jolly, I see as Mr. Johnson's cautious optimism because while very risky, this could be the short term solution to a deeply entrenched problem that our economy is in a stall.
And " this is not a strategy by the Obama administration " really ? who then drives our financial policy if not our government pray tell ? Who is responsible for reacting to a falling dollar ? Last time I checked, the financial markets react to the fed, not the other way around.
The strategy, as Mr. Johnson so aptly explained was " not to panic " but rather let the rest of the world do so. By allowing the dollar to weaken Obama is fighting against all of these import restrictions against US exports. If the cost of our exports become cost attractive international buyers are going to climbing over each other to buy it, which will drive up demand and force employers to add shifts etc.
Nothing comes without a cost and between the banks and employers, it's all been about lookin out for number one. Banks were jumpin for joy to get our tax dollars but refuse to lend and employers won't hire. Having said that, given our economy IS so service oriented, who can blame them. Whose out there to be serviced ?
The key to to our nations future is to slowly ( hopefully not so slowly ) rebuild our manufacturing base. The only way to do this while accounting for our relatively high cost structure is to drive the price of our finished goods down when purchased by foreign currencies. As the author has said.
It's a balancing act and requires nerves of steel. With an entire nation hanging in the balance that you would marginalize Obama and his cabinets ability not to panic, or say that this is not a strategy, is quite shortsighted
Obama and his team stopped the collapse now they are trying to rebuild. With so much at stake, how can we expect there not to be any risk ?
Glenda1976
I really hope this gimmick is not the Administration's plan.
This user is no longer registered.
n--Y--grumpyguyrobjh1
It's not a secret now.
"and we are not saved..."
sonofloud
The reason it is a secret plan is because this article is total garbage.
Back to the same old arguments from the Obama apologists....Obama is brilliant and 2 steps ahead of the rest of us mere mortals who can't understand his thinking.
sonofloud
Currencies rise, currencies fall. Isn't it a zero-sum game, and for that matter aren't the stakes pretty small in any case?
In general, yes. And even if we are now facing an unsustainable dollar overvaluation comparable to that of early 1985, those old enough recall that despite grim warnings of an impending "hard landing", the correction of that overvaluation was almost entirely benign. (Yes, some claim that it led indirectly to Japan's bubble economy - but that is a complicated story).
But matters are a bit different now, because we start from a different place. Arguably, the state of the world economy right now is such that a sharp dollar decline would be contractionary almost everywhere (except Argentina and Hong Kong).
To understand why, bear in mind that a currency depreciation (or, more strictly, a revision of expectations leading to a currency depreciation - the exchange rate is, of course, an endogenous variable) constitutes a positive demand shock and a negative supply shock to the depreciated country. It is a positive demand shock because the country's goods become more competitive on world markets; it is a negative supply shock because import prices increase. And conversely, of course, a currency appreciation is a negative demand shock and a positive supply shock.
The reason to be concerned about a sudden dollar decline, then, is that it so happens that the United States is currently a supply-constrained economy, while much of the rest of the world is demand-constrained. So the net effect is negative almost everywhere.
In the United States, where wages are finally beginning to reflect a more-than-full-employment labor market, a sudden dollar decline would at least threaten to produce a wage-price spiral - and the mere threat would mean that the Fed would likely be forced to raise rates. Whether this would lead to a substantial contraction is unclear - who the heck understands aggregate supply behavior these days? - but a dollar decline is certainly not positive for the U.S. right now.
As for the rest of the world, demand shocks from a currency appreciation are normally easy to deal with: just cut interest rates, which among other things limits the appreciation. But of course Japan is firmly in a liquidity trap, and cannot cut rates; the euro-zone is not in a liquidity trap, but a sufficiently sharp dollar decline could put it into one. The only places that clearly benefit from a weaker dollar are demand-constrained economies pegged to the dollar; and Argentina and Hong Kong are just not big enough to change the general picture.
Simple textbook open-economy macroeconomics, then, tells us that starting from where we are right now - a U.S. economy at or beyond capacity, a large part of the rest of the world well below capacity, and in or near a liquidity trap - a drop in the dollar will be a global contractionary force. How strong a force? Well, it depends on the drop; if markets were to force the U.S. to move rapidly to current account balance or beyond, the numbers would be very troubling. This is unlikely, I think; but then serious crises usually are, ex ante.
And that is the main point. The last time we had a seriously overvalued dollar, the inevitable correction did little harm, mainly because the appreciating countries were easily able to expand domestic demand. If the current situation looks more troubling, it is because non-dollar countries cannot increase demand using conventional policies, and are unwilling to contemplate unconventional policies. That unwillingness, not the dollar per se, is the source of the problem.
http://web.mit.edu/krugman/www/dollar.html
exploora
In this case the USD is probably not over valued the way it was, and the holders of its currency/debt, are going to see it devalued and might want to dump it, possibly fearing future hyper inflation. I don't think we have examples of currency devaluations when that country is over trillion (short scale) dollars in debt.
mcmchugh99
I really think they also need to look at the old Keynesian idea of a world central bank, with its own reserve currency, to stabilize and even out the imbalances in the global system.
kd0erj
Please tell me why, the current administration's interest in keeping the price of goods high is a good thing?? If the people paying the inflated prices aren't making more money to compensate for the higher prices, then there is less money for the consumer to put back into the market. Less money in the market equals...you got it! A recession. Figure it out people. Raising taxes, borrowing more money, and artificially raising the prices of corn, houses, insurance, you name it will NOT make things better, they will only get worse.
nahummer
While I agree with Simon that the weakened dollar may be a boon to manufacturing and thereby help in the 2010 election, I think that the downside makes the gamble too risky. The signs of the end to dollar hegemony have been flashing for years now and the slide is threatening to turn into an avalanche. Witness the reaction to the article in yesterday's Independent, http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-17 98175.html
With the added risk of inflation in the future with the printing presses working overtime for the past year, it could get ugly.
www.theendisalwaysnear.blogspot.com
Thank you.
As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.