Epic Nation

Friday, December 03, 2004

Dollar troubles?

Be warned: This post is much less a conclusive essay, and more a "who the hell knows for sure" rambling. But its not in a "truth is relative" sort of way. Its more along the lines of "dumb asses who don't know what they're talking about should keep their mouths shut".



While attending business school in Europe in 2002 the dollar had just begun its slide and their was a certain cockiness among my European (cough cough FRENCH cough) friends who saw this as evidence of a weakening U.S. economy. A good friend of mine was convinced that this was the beginning of the end of the dollar's dominance, and a passing of the torth to the Euro. Whether this was a matter of national pride (there is no real EU nationalism perse, but the French consider themselves the master of Europe and take full credit for any of its accomplishments) or economic reasoning, there was still a strong feeling that a weakening dollar was bad news for the US and good news for the EU.

To be honest I am still not sure what to think. But I do feel more comfortable than not about the dollar's current position. A "cheaper" dollar means that demand for US exports increases; something that should alleviate the concerns of those worried about a growing US trade deficit. Also, along with rallying the housing market, the lower interest rates encourage capital investment because of discounted borrowing.

At the same time the demand for European goods is down because imports from the EU seem more expensive. I would imagine this is having adverse effects on an economy that depends so greatly on US consumers to buy their products. So, should Europeans be all that happy about a "strong" Euro?

Back to US concerns over the dollar. I've read several articles over the last few months about the decline of the dollar and what it could mean for the economy and consumers. Some analysts make the argument that a weakening dollar will eventually lead to high inflation. But with inflation holding steady at 2%, and the Fed making its intentions clear that interest rates will be increased, should we be concerned about inflation? Can the Fed reign in the dollar before inflation becomes an issue?

Hmm... seems I've asked more questions than anything else. But maybe thats my point. Who knows what will happen? I'm sure those who have a real grasp on the issue only share their thoughts with people/firms/governments willing to pay a great deal of money for their expertise.

I can, however, make one solid conclusion: the idiots in the press have no idea what theyre talking about and should stop hyping the "collpasing dollar" storyline to meet their own sensationalist ends. Until Lou Dobbs, or even Neil Cavuto for that matter, can explain (with supportive data) how this administration's monetary policy has adversely effected the U.S. economy (using Maynard Keyne's IS/LM economic model), they should stick to bitching about Kenneth Lay and the price of crude.

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