Sam Uretsky

Embrace the Falling Dollar

The dollar is falling. That’s serious. In fact, according to BBC News (and as everybody knows except fans of Little Britain, Top Gear and the classic Fawlty Towers, the BBC is always serious): “The world’s richest model has reportedly reacted in her own way to the sliding value of the US dollar — by refusing to be paid in the currency.” Her name is Gisele Bündchen, she’s Brazilian, has deals with Pantene and Dolce & Gabanna. Actually, the “Beeb” report also said that Warren Buffet is negative on the dollar and George Soros would be if he were doing currency trading — but he isn’t. The decline in the dollar is a sign of economic recovery, but not everybody sees it that way.

On Oct. 13, the Euro rose to $1.4920. At the same time, the dollar dropped to 89.43 Japanese yen from 89.76 yen, it fell to a 13-month low of 1.0250 against the Canadian dollar, and the Australian dollar reached a 14-month high of 91.57 US cents. Gold, traditionally a hedge against inflation, has been rising steadily, passing $1,000 an ounce. Other precious metals, silver and platinum, also rose in price, and the Wall Street Journal has been warning about the risk of inflation, with Kevin Warsh, a member of the Board of Governors of the Federal Reserve, publishing an op-ed piece calling for a rise in interest rates to protect the dollar. Fox News, also a Rupert Murdoch product, has been issuing inflation warnings. Larry Kudlow, who doesn’t work for Fox but could, wrote in his blog, “A stable King Dollar and lower tax rates could save the nation at this critical juncture.” Then, maybe worst of all, somebody ages ago described a currency that’s worth more in terms of other currencies, as “strong” while those worth fewer francs or euros, yen or yuan is called “weak.” A weak dollar is an affront to our pride. The notion that a French franc might be gaining on the US dollar is a national insult that can only be wiped out by raising the interest rate on Treasury bills. Maybe we should go back to Freedom Fries and Freedom Toast until they back off.

But, a falling dollar is good — at least for most people, at least right now. Some people will be hurt, of course, but in general, seeing the dollar fall is a reassuring economic sign, and a promise of better things to come. It’s not a good time to be stuck with a fixed income that can’t adjust for inflation, but it never is.

The first thing to keep in mind is that the dollar is retreating from high levels that were caused by fears of a total economic meltdown. A few months ago, when it seemed as if the world economy was going to the dogs, the price of US Treasury bonds rose, and the interest rates actually dropped into the negative zones. This was an indication that people thought the US dollar was the last safe place to keep their money. As the economy improves, these same people are pulling their money out of T-Bills and choosing other investments with a bit more risk, or even buying things. People buying things creates jobs, and the people who have jobs have more money and they start buying things, and pretty soon you have an economic recovery on your hands. That’s a good thing.

It’s never nice to have prices go up, but even that has a silver lining, at least for the moment. While we’re all looking for deep discounts and bargain prices, one of the best motivators of shopping is concern about rising prices — the lure of the one day only sale. If the price is likely to go up tomorrow, better buy today. This is a form of economic stimulus that doesn’t add to the deficit. You wouldn’t want rising prices all the time, but if you just want to get business moving and put people back to work, rising prices are more effective than falling prices.

A falling dollar helps exports and hurts imports, and that’s good too, mostly. It’s not an absolute, because oil is always traded in dollars, and a falling dollar means higher fuel prices, but the exchange rate lowers the price of American products overseas, and raises the price of imports. That helps the balance of trade, increasing exports of agricultural products, sales of American cars, and anything else still made in the US. Chinese exports owe a lot to cheap labor, but probably just as much to an undervalued currency.

There’s one more bit of assurance if anybody needs it: Gisele Bündchen lives in New York. One of the few truths of economics is that you can’t live in New York without a lot of dollars. The currency is safe, for a while.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.

From The Progressive Populist, November 15, 2009

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