I wrote:
>this discussion is interesting, but it's between two admitted ignorami
>(Rob & myself). Is there anyone on pen-l who knows -- or has some sort of
>journalism-based knowledge -- of why the U.S. has pursued a "high dollar"
>policy?
The journalism-based knowledge man, Doug, writes:
>1) Wall Street likes it, because, among other things, it makes everyone
>else's assets cheaper, and 2) when you need to borrow $1b/day abroad, you
>better hope your currency stays strong.
Along with Michael Perelman's, Ellen Frank's, and Peter Dorman's
explanations, that makes sense. But the latter is a very bubblish way of
thinking. When the dollar starts falling, it's likely to be a disaster,
since for a long time the US will still need to borrow (given J-curve
effects and the like).
I think the US is still very bubblish in its thinking, despite the fall of
the NASDAQ. The media and even the Fed seem very short-term in their
orientation. As does the Bushwacker. Everything works out well as long as
we can delay the disaster until tomorrow (even though delaying it makes
matters worse).
Peter Dorman wrote: >From a government standpoint, the strong dollar
bolsters the prestige of US political elites and amplifies the leverage of
the US in international organizations. In a sense, it is the same
constellation of interests that impelled England to strive for overvalued
sterling after WWI.<
As Peter knows, the problem with England was that it had lost its
(relative) economic, military, and financial power after WW I, so that the
hoped-for return to "par" was a disaster. The British elite apparently
thought that by clinging to the token of power, it would somehow restore
the power. (That logic only works if the exchange rate is only slightly out
of whack.) Currently, the U.S. is "on top of the world," in terms of
economic, military, and financial power so the high dollar doesn't go
against the political-economic grain (though the increasing external debt
does represent a sign of problems to come).
David Shemano writes:
>I am not sure about the assumption contained within your question. Are
>you talking about the dollar's value relative to other currencies, or
>relative to a basket of commodities?
relative to other currencies.
>It seems to be that the Fed has followed an anti-inflationary policy (to
>the point of deflating the currency) as opposed to a specific policy to
>strenghten the dollar relative to other currencies.
that may be so (while the dollar may also be high due to the "safe haven"
effect). However, they present it as a high dollar policy. This may be a
matter of putting the best face on what already exists. I think that
Michael Perelman is right that a "high dollar policy" refers to preventing
it from falling (rather than bidding it up in the first place).
I don't know what "deflating the currency" means. Usually its _prices_ that
fall, which is summarized as "deflation." Under these conditions, the
currency gains value in terms of its commodity-purchasing power.
Rob wrote:
> >(2) it makes stuff denominated in greenbacks (like oil) cheaper;
I wrote:
> > for whom? not for those of us with US$.
Christian Gregory wrote:
>Come again? Should we prefer to be using yen to buy gasoline?
no. What I was saying was that since the international price of oil is set
in dollar terms, a high dollar doesn't benefit those of us paid with US$.
(If the high dollar were to induce a US recession and thus a world slump,
it might cause the price of oil to fall, though. This happened in the early
1980s.)
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
"There are few Einsteins today. Maybe they all flunk the Graduate Record
Exam or get poor grades." -- Temple Grandin, _Thinking in Pictures and
Other Reports From My Life with Autism_.
