Remember how a cheap dollar was supposed to soup up our export market and tame that pain in the ass Trade Deficit of ours? Well, something weird happened on the way to Grandma's (Medicare & Social Security and the Baby Boomers) house. The freaking Wolf (The Oil Exporters) dressed up in higher oil prices and beat the stuffing out of Grandma. The Woodsman (Illegal but cheap Labor) joined the Municipal Worker's Union, "developed" carpel tunnel syndrome, not to mention an allergy to honest work (the New American Way), leaving him and his axe nowhere to be found at the moment of truth. Our heroine, Little Red Riding Hood (The American People) was forced to turn tricks for Elliot Spitzer in order to pay for food and fuel to get through the cold winter...
But the Spring soon came, and the U.S. Dollar collapsed, the economy ground to a halt, and unemployment hit 25% before gardening became classified as a "job", but at least Britney Spears was pregnant with twins and had, at last count, been sober for 2 weeks, 3 days, 5 hours, and 27 minutes - so we got that going for us...
And they all lived happily ever after.
The End
3 comments:
The idea that a falling dollar would quickly boost exports is old economics, but isn't relevant when manufacturing is only 8.8% of your economy, and especially when consumer spending is 70% (i.e. of imported consumer products).
It'll take years for the 'benefits' of a lower dollar (and hence reduced real wages)will encourage home manufacturing, and even more years before you'll be exporting enough stuff to make a dent on your Balance of Payments. And where will that investment money come from?
Also manufacturers still think in terms of mechanised production, so they would plan a new factory with machines rather than the new, 'cheaper' labour, reducing the international advantage and increasing the funding requirement. You'll also have to demolish the old structures - as you say, the unions will get in the way, but also every civil servant from government down to your local Town Planning guy.
So to rebuild manufacturing and exports will be a grass-roots project; people recognising a gap in a local marketplace and setting up an enterprise to fill it. It's gonna take a long time!
What are your personal views on U.S. Treasuries now that Toxic stuff can be used as collateral for the 200bln Fed plan?
I'm no expert, but I'd suggest that printing money (especially in such massive quantities) will just hasten the downward slide in the dollar. This action has been mitigated slightly by other western currencies doing the same thing at the same time, but the effect on sentiment has to be serious. As Arab oil producers decouple from the dollar and price oil in euros, the dollar will revalue at a level commensurate with US debt levels and production; I can't begin to imagine how low that might be.
So treasuries just become more junk bonds, denominated in junk currency - sounds like expensive toilet paper to me. But as I say, I'm no expert.
I can't help but picture a driver whose driving fast and hit a patch of ice - he can spin the steering wheel or hit the brakes, but it'll do no good and you just KNOW he's gonna crash! The Fed have lost control; now we're just waiting for the bang.
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