If you've ever wondered what a couple of years of FUD (fear, uncertainty and doubt) can do for you country, you need look no further than what other countries think of your currency. A month back I did just that and found the answers quite staggering. While at home we probably don't notice the effect of currency devaluation, but from afar other countries take note. Its especially noticeable when it happens overnight - like when Argentina devalues their currency and people start protesting in the streets. Meanwhile it turns out the USA has enjoyed a steady but sure decline of our currency by 20 to 30% across the world.
Bush may be able to pull the wool, or a large cloth sack (if you're down in Guantanamo Bay) over the eyes of some, or even most of the Americans. However some of us realize that such a devaluation has some really quite serious consequences. Such as
- declining foreign investment - why put money into a currency that is devaluing faster than the interest rates?
- increasing import costs - our massive foreign trade imbalance (over $400B) gets more and more expensive
- fewer people traveling overseas - trips overseas no longer look like a bargin
- increased costs for US corporations doing business overseas
- etc. etc. etc.
All of these are very serious indeed. Of course the single argument that is used to justify why its okay for the dollar to be weak is its good for exports. But you know that only applies if you are primarily an exporting country and your people don't find themselves buying most of their daily needs from overseas. Unfortunately the manufacturing industry is in steep decline in this country as shown by the massive trade imbalance. In 2000 the annual trade deficit was in the $300B range and considered "a danger signal", now its at over $450B. And no, thats not all, or even mostly caused by Chinese trade which accounts for only $15B a year (it was previously twice that).
So just how bad is it?
Well, in the past two years there's been a 32% decline against the Euro..
And then there's been a 24% decline against the British Pound...
And 22% against the Yen...
And 35% against the Australian dollar...
And 21% against the Canadian dollar...
So, overall you can see that the Dollar is basically having the shit kicked out of it since 9/11. World confidence in the dollar is at an all time low which has lead to the USA struggling to find ways to get foreign investment when our interest rates are at an all time low. And you know what the prime weapons are used to prop up a devaluing currency? Higher interest rates - to encourage people to invest in dollars, and using currency reserves to buy dollars at a higher price, and restricting the money supply. It turns out that none of these is a good thing, increasing interest rates now will spell doom for our jobless economy, and burning currency reserves is usually a very short-lived and extremely expensive band-aid.
As it turns out the best thing we can do to rescues the dollar is restore foreign confidence in the USA. How do we do that? Easy, get rid of Bush. Believe me, if Bush wins the election again in November the foreign markets will give a very clear indication of what they think of the result and the once mighty dollar will continue its Bush induced slide into the toilet. Of course one interesting consequence of this is it may eventually inspire some growth in home manufacturing since it will become easier and easier for local companies to produce goods cheaper than imported ones. But I'm afraid that's probably a long way off and all indications are that corporations like Wal-Mart are dedicated to continuing to feed our addiction for imported goods.
Well you didn't really think I could blog about the economy without mentioning the axis of evil? Bush, corporations and Wal-Mart...
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