Dean- you mention the high dollar policy of the Clinton administration several times. Can you tell me how the treasury department implements a high dollar policy?

Robert rubin, in contrast to his predecessor, talked up the dollar. He also never tried to take any steps to bring down the value of the dollar as it rose by almost 20 percent in real terms against the currencies of our trading partners. He could have sought an agreement with our main trading partners to lower the value the dollar (this is what happened in the mid-eighties to bring when the dollar became over-valued). In the absence of an agreement, he could threatend, and if necessary, actually carried through with a policy of dumping dollars in international currency markets. (My guess is that the threat would have been sufficient -- you need a lot higher return on a dollar denominated asset, if you think that the currency could drop by 5-10 percent at any time.)

Dean,
I know Rubin's mantra was that a strong USD was in the interest of the USA but that is exactly what every Treasury Secretary since has said too. Rubin took no action in the FX markets to effect the exchange rate nor has any of his successors at Treasury. So what is the big difference between the Clinton and Bush admins policies (apart from foreign policy) It has been diametrcially opposed fiscal policy. Clinton/Rubin stabilzed the fiscal deficits and put us on a path to surpluses. Bush came in and unowumd it all and put the fiscal path in the opposite direction. Now I agree with you that this is not neccesarily the main cause of recent USD weakness but to accuse Clinton/Rubin of being the cause of the current weakening USD is absurd.

Max,

Rubin's predecessor actively supported a weaker dollar, recognizing that it was needed to keep the trade deficit was growing. This is just basic accounting. A high dollar increases the trade deficit, a low dollar reduces it. We got an unsustainable trade deficit because of the high dollar of the Clinton years. The high dollar was therefore not sustainable. This make Clinton responsible for the dollar's fall -- if he had not allowed it to rise to an unsustainable level, it would not now be falling. I don't see any way of escaping this logic.

Bush deserves some blame because the trade deficits are so high that any extra deficit from the gov't is a problem. foreigners we saddled with an extra trillion(I'm not entirely sure of the number) dollars of US assets to buy at a time when they were already stretched.

we had a strong dollar because the stock market was soaring.

"A high dollar increases the trade deficit, a low dollar reduces it."

the dollar has been falling since 2002 and the trade deficit has just grown. I think it's a recession which would bring about a decrease in consumer spending that would bring the trade deficit in lin...except for the last recession.

you have to wonder how much of our deficits though are structural. will we make socks and shirts now in the US if the dollar is lower?

It should be noted that the real money of the United States, which is a specific weight of gold or silver, is actually up. US dollars aren't even actual dollars.

.
Dean you are correct, as far as you go.

The real impetus behind the 'Strong Dollar Policy' was to enable American Companies to expand and guarantee Corporate Property Rights overseas.

NAFTA was the first salvo in this racket to enrich corporations . The WTO soon followed. Bush has signed numerous 'Frree Trade Agreements' since.

Wal Mart is a prime example as a beneficiary ... Not only have they outsourced production of American goods , they have opened operations in Europe , Latin Ammerica and Asia , albeit with very mixed results .

So , let's be honest , Clinton's policy was by , for and about corporate welfare.

.

Dr. Baker,
I must be missing a point here. The data I see show that the deficit on current account and a percentage of GDP (using BIS data) for the 1960-2006 period has been rising gradually from 1% or less until 1983; it stayed bely 2.5% through 1988 (aside from 1985-1987 -- and we don't want to repeat that, do we?); in 2000 it crosses 4% and hasn't looked back since. If my calendar is correct, the Clinton years had deficits generally below 1.5%. So where does your theory fit in?
P. Zoll

A thought occurred to me because I have seen several articles and stories bemoaning the weak dollar that this decline in the dollars apparently causes the most pain in our upper and upper middle classes, first because they are more likely to travel abroad and feel the pain of sharply higher prices (in dollar terms) and, second, because they feel a decline in their relative wealth since more of their assets are priced in dollars.
It is also amazing how both the N.Y. Times and Washington Post editorial (Social Security and not understanding that wages, because of productivity growth, usually grow faster than prices) editorial pages can demonstrate such economic ignorance onn back to back days.

Dean -

A sinking dollar raises interest rates. Government borrowing raises interest rates. This causes the dollar to be worth more? I don't get it.

Goods and services, when not distorted by taxes (petroleum elsewhere) or bubbles, are dirt cheap in the U. S. (my own standard is the price of a bottle of beer). How is the dollar overvalued? Just because median wages are higher here than there?

Last I heard, the USD was the world's reserve currency. What does a sinking dollar, or a switch to some other reserve currency, do to the economies of the world and us?

Joe

To what extent are the central banks of other nations propping up the dollar?

you have to wonder how much of our deficits though are structural. will we make socks and shirts now in the US if the dollar is lower?

In the current neoliberal system, America is just not competitive when it comes to production. Our living standards are too high. A weak dollar may lower the living standards somewhat and, therefore, make us somewhat more competitive. The question is, how low can the dollar go before it is intolerable to Americans?

The degree American living standards must decline in order for us to really start producing again is not politically feasible. Let's face it, most Americans are not willing to live like the average Chinese or Indian person. And, as time goes on, and techology and business skills are transferred, this is what it's going to take.

My prediction is that the fall of the dollar will lead to the current international trading system falling apart. It's going to be an exciting and scary thing to observe.

Addendum: I wrote Let's face it, most Americans are not willing to live like the average Chinese or Indian person. And, as time goes on, and technology and business skills are transferred, this is what it's going to take.

I can see the brain gears in some grinding out the idea that maybe the Chinese and Indian and others will have their living standards rise to American levels. Isn't this the promise of neoliberal globalization?

I will only comment that the current system greatly increases the power of capital and decreases the power of labor. The global labor arbitrage is one of the pillars of this power arrangement. And this pillar also is one of the fundamental supports of neoliberalism in practice. I don't think the pillar will be toppled by those that benefit from its support.

Dear Ponzi ,

The great equalizer is coming soon.

Peak Oil . 2010-2015

All goods will have to be made much closer to home. The cost of fuel is going to skyrocket $5 -$7 -$10 a gallon.

The average food item now travels 1500 miles . This is unsustainable.

The cost of growing food will skyrocket due to diesel and petro chemical price surges.

Iran just may be the excuse they need to raise gas to $7 . They can't let on that oil production is in permanent decline while demand is surging.

You know, Michael, our gas prices up here in Canada have been fluctuating between $4.00 and $4.75 for the last few months - compared to, what, $2.80, $2.90, in States. The fact is, it doesn't make that much difference. Yes, I think about my gas consumption more at $60 a fill-up than I did at $40, and no doubt Canadians are somewhat less likely to drive gas-guzzlers than Americans (but of course we're somewhat poorer than you too). Basically we have a slightly less profligate version of the high-energy-use, high-auto-use economy, and there's no revolution in sight. Now, if gas prices go to $10, there may be some changes, but a lot less, I bet, than you're expecting.

Christopher ,

The problem with Peak Oil is that prices will continue to go up . The first couple of years adjustments will be made , the new price accomodated but as the price excelerates people won't be just buying less oil , they will be buying less of everything .

Food will also excellerate in price . Imported goods as well .

Air travel will double then triple.

There will have to be major changes in everybodies economic models .

I believe Dean is wrong about the ability of US financial institutions to offer accounts in foreign currency. Before moving to Switzerland, I had foreign currency accounts in euros in a US bank-Everbank, they can be found on the internet. In addition, these accounts were protected by FDIC insurance.

The very small investor can now invest in foreign currencies using currency ETFs, although those probably didn't exist back in 2002. I've got a very modest amount in FXE, which is a Euro ETF, and it's doing just fine thank you. I plan to buy more of it as soon as I've got some savings to do so. I've been reading Dean for several years, and throughout have been trying to figure out any way I can to get my meager savings out of dollars. Unfortunately the vast majority of my savings/investment is locked in employer-dictated 401K/403B programs that don't give me any choices that would get me out from under the dollar's fall. I suspect that that's true of the vast majority of Americans.

Actually, the dollar is immediately borrowed by the Government and put to use in all the things they do. In a way the Trust Fund is a type of forced savings. The payee eventually gets back the principal with interest when he retires or is disabled. Any kind of retirement savings does the same thing, though private retirement funds obviously invest much more in the private sector.