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The US dollar

Bearguin

Graduate Poster
B
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Mar 10, 2003
Messages
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Anyone here pay attnetion to the US dollar lately? Just wondering how others feel about the reent decline vs most other currencies and the US apparent backing away from a strong dollar policy.

As a Canadian, I'm actually a bit disappointed as the reduced price on imports may slow down our economy as Canadian goods become less competitive. Plus I lose a bundle on my US stock stuff.
 
Ive heard mixed reports (what else is new), the most puzzling is that a lower dollar can accually HELP the economy. How does that work?
 
Seems to have worked very well for Canada.

Imports of goods become more expensive allowing for less competition for Canadian companies while at the same time goods exported out of Canada are cheaper for US purchasers so our Export market is increased. Foreign investment in Canadian companies is increased as it is cheaper to hire labor etc. in Canadian funds than US funds.

I'm disappointed with the stance the US government is taking as it will hurt Canada. Maybe this is payback for not joining in the war?
 
It doesn't bother me much in the states and when I am overseas, my pay goes up if the dollar goes down to counter the cost of living in a foreign country.
 
Gods Advocate said:
I'm disappointed with the stance the US government is taking as it will hurt Canada. Maybe this is payback for not joining in the war?
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You don't really think the US cares enought about Canada, one way or the other, to change domestic policy effecting our own ecomony, do you?
 
Tony said:
Ive heard mixed reports (what else is new), the most puzzling is that a lower dollar can accually HELP the economy. How does that work?
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Imagine I go to the US to buy apples at 100 per dollar. If the £ to $ rate is 2:1 then I can buy 200 apples per £. Should the exchange rate reach unity then I can only afford to buy 0.5 times as much good as I previously could. Ergo strong currency = buggerall exports. The £ is a very strong currency- one reason why the UK has about a 95% service economy.
 
Jon_in_london said:


Imagine I go to the US to buy apples at 100 per dollar. If the £ to $ rate is 2:1 then I can buy 200 apples per £. Should the exchange rate reach unity then I can only afford to buy 0.5 times as much good as I previously could. Ergo strong currency = buggerall exports. The £ is a very strong currency- one reason why the UK has about a 95% service economy.
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Thanks Jon, btw, how do you make the pound sign on your keyboard? :D
 
time to shop...

well, I enjoy shopping in Europe, for certain things I can't get in the US. I remember a LONG time ago when the exchange rate on the pound was 1pound=$1.20. I still have the little cottages by David Winter that I bought a ton of. Too bad at that time I was too young to have developed good taste...

So, looking at a long trip this Aug or early Sept, and hoping the exchange rate will favor some serious chocolate shopping. See, I got my priorities right. The company pays for the hotel and airfare, and there is a food allowance, but when you have kids you gotta bring them something.
 
Not just Canada groaning. A lot of countries export to the States. The lowering of the dollar, despite all the claims that there is no intention of lowering it, is to help try to ward off a recession. By lowering the dollar, the price of imports goes up, and therefore US goods are more competitive, more US workers get jobs. Also, inflation goes up, which is a bonus in this case, as the US is worried about going into a Japanese style deflation.

Interest rates can't go any lower to kick the economy along.

It is going through a huge drop, at a pretty rapid rate. Expect some market hijinks due to the contortions it introduces. IE, companies that have bargained on the dollar staying in a certain range will lose or gain big time. US stocks will be less attractive to those overseas investors and people lending to the US will be less inclined to lend, as they will have just lost a lot of money on the dollar going down.

The funny thing, is that when the dollar goes up or down and a 'lefty' government is in power, it is always a bad thing. When it does the same thing when a conservative government is in power, it is always a good news story.
 
Interest rates can't go any lower to kick the economy along
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Why not?

Unlike most of my smart-ass responses to your (often silly) posts AUP, this is a serious question.
 
a_unique_person said:
Not just Canada groaning. A lot of countries export to the States. The lowering of the dollar, despite all the claims that there is no intention of lowering it, is to help try to ward off a recession. By lowering the dollar, the price of imports goes up, and therefore US goods are more competitive, more US workers get jobs. Also, inflation goes up, which is a bonus in this case, as the US is worried about going into a Japanese style deflation.
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Actually, AUP, the foreign exchange value of the dollar is mostly determined by the world supply and demand for dollars*. Our extremely low interest rate makes foreign investment into the US not very profitable, causing there to be a lower demand for dollars to invest with, thus decreasing the foreign exchange rate of the dollar.

*While it is true that the Federal Reserve can exercise some influence on the value of the dollar, it can only do so through manipulation of the interest rate (low interest rate = weak dollar, as explained above), and actual buying and selling of dollars on the foreign exchange market.
 
shuize said:

Why not?

Unlike most of my smart-ass responses to your (often silly) posts AUP, this is a serious question.
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US Fed rates are at 1.25% atm I think, very low.

approaching zero % is not considered helpful (or attractive), and lowering it more is not going to make much impact on a slowing economy. Although I can't recall the last time Interest rates were less than 1.25% so there may be no precedent regarding lowering the rates to approach 0%
 
Elaborate said:


Actually, AUP, the foreign exchange value of the dollar is mostly determined by the world supply and demand for dollars*. Our extremely low interest rate makes foreign investment into the US not very profitable, causing there to be a lower demand for dollars to invest with, thus decreasing the foreign exchange rate of the dollar.

*While it is true that the Federal Reserve can exercise some influence on the value of the dollar, it can only do so through manipulation of the interest rate (low interest rate = weak dollar, as explained above), and actual buying and selling of dollars on the foreign exchange market.
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While true in theory, in practice not.

Buckled by the buck

Until Monday, the stock market liked the lower greenback. That it's now considered bad is worrisome.
May 20, 2003: 8:45 AM EDT
By Justin Lahart, CNN/Money Senior Writer



NEW YORK (CNN/Money) - For six weeks the stock market looked blithely on as the dollar weakened, rallying even as the greenback tumbled to ever lower levels against the world's other major currencies.

Over the weekend, everything changed -- Treasury Secretary John Snow's substantially retooled what the United States' "strong dollar" doctrine means, and suddenly Wall Street decided that the buckling buck was a problem. The notion that the dollar no longer has a safety net rekindled old fears that overseas investors will start pulling money out of U.S. assets -- causing more dollar weakness and snowballing into a general run for the exits.

That these fears have surfaced threatens to derail what Snow was trying to achieve. A weaker dollar appears to be part and parcel of a no-holds-barred effort by the Federal Reserve and Treasury to get the economy back onto its feet again. For the Fed, this means a pledge to keep interest rates low even if the economy begins to show signs of life, openly courting higher inflation as a means to fighting back the possibility of deflation.
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All this guy has to do is hint in the vaguest terms that a lower dollar would be welcomed, and the rush is on to sell before the other guy does. Result, lower dollar.
 
It's very simple, the dollar goes down, prices go up, and the money that Bush spent on the war is inflated away, along with everyone's life savings.

Just another way to take care of business and forget about the people who live here.
 
You cant really lower interest rates below the rate of inflation. Lets say the rate of inflation is 5% and the interest rate goes down to 2.5%.

So if I have $100 now, in a years time its worth $95.
If I borrow $100 then in a year I only have to pay back 102.5 dollars.

I would therefore lose less money by borrowing money. Now Ive really confused myself and my head hurts, wheres that bottle of aspirin?....
 
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