Re: US Dollar
There are many different forces at work here.
First the administration wants a weak dollar. Why ?
1. Although for guys like us a weak dollar sucks when we travel it is really a good thing for the domestic economy. Thats because looking from the reverse situation alot of tourists from around the world will take advantage of the weak dollar and their present purchasing power and decide to go to America for vacation rather than lets say a European country creating hundreds of thousands of jobs in the tourist industry.
2. Also a weak dollar makes our exports more attractive to other countries. For eg. all things being equal if something is made in Germany and the same product is made in America it may still be cheaper even after shipping costs for a person in England to purchase the American product due to the exchange rate savings. This acts to create/protect domestic jobs.
The danger that you allude to is the scenario that some major foreign country, a big player like China, Japan, Russia etc. stops buying our bonds, which finances our national debt. If this were to happen we would have to raise our intrest rates to make our bonds more attractive to the other foreign investors and this would create a perfect scenario for a recession because..
1. The higher intrest rates would dramatically slow investments here by domestic companies by making borrowed capital more expensive to aquire resulting in stifeld growth. Lack of investment in Research and Development, upgrading equipment etc. etc. and ultimatlely loss of domestic jobs.
2. The dollar would strenghten against other currencies (due to the higher intrest rate/return for foreign currency investors) and therefore make our exports less attractive to world consumers which in turn would create lay-offs here in domestic factories and less tourism resulting in layoffs in that sector of the economy as well.
3. We would have to raise taxes to make up for the shortfall in unsold treasury bonds to make our quarterly national debt payments. This would make less capital available to the consumer to spend on products and thus again result in lay-offs in manufacturing and services areas of the economy.
Making things a little more complicated as to why in places like the D.R. our currency has not slid as much as it has vs. the euro? The other thing to throw into the mix is that the Saudis will only accept American dollars as payment for oil purchases. So a small country (like the D.R. for eg.) needs a certain amount of dollar reserve for this wheras the europeans have a surplus of dollars.
Last edited by ROVER; 12-29-2006 at 09:08 PM.
DON’T HATE THE PLAYER !!!!! “HATE THE GAME”
Originally Posted by JuanElGriego
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