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Downhill Dollars by Lufteufel 02/08/2003, 7:14pm PST
d) Germany and Japan are FAR more export-dependent than we are, and this article really applies more to third-world countries than first


An article in last week's Economist titled "Downhill Dollars" explains how a weaker dollar could actually help the export-dependent countries in the Euro-zone. These countries are having problems stimulating domestic spending, but they're still too afraid of inflation to cut interest rates. A weaker dollar and the resultant reduction in export income would ease inflation fears. Consider this statement regarding the ECB's meeting last Friday, where they decided not to cut interest rates:

Question: Given the fact that the inflation rate looks benign and that there are still downside risks to growth, which impediments do you have to cutting rates?

Duisenberg: The impediments to cutting rates at this moment are the big uncertainties that still surround the figures that you mentioned. The uncertainties relating to oil prices, the geopolitical uncertainties and, well, let me say this: we were afraid that if one were to cut, at this moment, it would be a drop that would drown in the sea of uncertainties.


e) in the long-term, however, the article is quite probably correct


Forgetting for a moment the "fiat/oil currency" angle, a weaker dollar could prove better for both sides of the Atlantic in the long term. Inflation in the US is already at a 50 year low, and production capacity still exceeds demand. With interest rates also very low, the Fed has little power left to stimulate spending and fight deflation. Uncontrollable deflation would lead to a depression.

A weaker dollar would force Euro-zone countries to raise export prices, which would help prevent deflation in the US. At the same time, the cheaper US exports would become more attractive to Euro consumers, who may be more willing to spend money now (see point above). With greater demand abroad, the US economy would shift excess capacity towards export production.

Nonetheless, John Snow, Bush's nominee for treasury secretary, has promised to pursue a "strong dollar policy." Apparently, there are other factors that justify the deflationary risk of a strong dollar. Of course, Bush has already demonstrated his willingness to pursue alternative methods of keeping import prices high when politically necessary.
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A solid explanation of why we're going to war that I can agree with by Senor Barborito 02/07/2003, 4:23pm PST NEW
    Re: A solid explanation of why we're going to war that I can agree with by laudablepuss 02/07/2003, 5:54pm PST NEW
        Re: A solid explanation of why we're going to war that I can agree with by Fullofkittens 02/07/2003, 6:02pm PST NEW
        Re: A solid explanation of why we're going to war that I can agree with by Senor Barborito 02/07/2003, 6:16pm PST NEW
        Re: A solid explanation of why we're going to war that I can agree with by Jhoh Creexul 02/08/2003, 8:14pm PST NEW
    Re: A solid explanation of why we're going to war that I can agree with by Zebco Fuckface 02/07/2003, 6:39pm PST NEW
        OK by Senor Barborito 02/08/2003, 4:36am PST NEW
            Re: OK by Zebco Fuckface 02/08/2003, 12:45pm PST NEW
            Downhill Dollars by Lufteufel 02/08/2003, 7:14pm PST NEW
 
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