Holy smokes. I just read 9 pages of this thread for the first time (ok, I'm too wound up to sleep), and I cannot believe not one person has explained this. It's the basis for our foreign policy for christs sake, and it is 100% accurate. Let me see if I can explain this more simplistically. A strong dollar means that other currency is cheaper yes? So, say $1 is equal to 7.50 yuan (chinese dollars) right now, that means that you can go to china and buy $7.50 of their products. If the dollar gets 'stronger', then $1 becomes say, 8 yuan. Now... that means I can go to china, and buy $7.50 worth of products, and then $.50 more worth of the same product. The products there got CHEAPER right? What does this mean? When we import 750 billion dollars worth of say shoes from China, when the dollar gets stronger, we get 800 billion dollars worth of shoes. Isn't that great? Prices got cheaper! Now, Walmart can sell those shoes for even less money! What does that do to OUR shoe factories? Maybe China can produce shoes for $1. WE are producing shoes for $1.10. Great, some stores can carry our shoes, people may pay a bit more to buy American. But what if the shoes dropped to $.90? What if they dropped to $.80? Would anyone be willing to pay $1.10 for the SAME SHOES? The cheaper the money gets, the more crippled our industries get. The more US jobs are lost. The more factories get shuttered. A few years ago, the very last Levi Strauss factory shut down. This is EXACTLY what happened to them. 100 years of American history gone. Levis are all made in China now. Funny, that little Wild West gold miner emblem today. THIS is the price of a strong dollar. More and more companies in the US cannot compete. As they go the way of the dodo, all the companies that fought to sell American products must switch to Chinese products. They no longer have a US supplier. So all that money becomes still more imports. We're hooked on the crack of cheap prices, our industries cannot compete, and as they go out of business, we must buy more from our dealer, China, to fill the hole. This weakens the economy as we go from being a producer nation to a completely dependent debtor nation, and if it goes far enough, into slavery, as we can no longer produce anything, yet we must have our supply. For the last... I dunno, 12 years? Our government have been fighting for the Chinese to devalue their money, stop tying it to the dollar, to give our industries a fighting chance. Grant you this doesn't help the consumer, who will happily distroy their potential future income by buying cheaper today. But our economy needs them to stop giving us such a great deal. I give you the best comparison most of you can appreciate. Walmart. What did Walmart do to small local businesses every time they opened a store in the last 10 years? Distroyed them. How? By being cheaper due to their volume pricing (and buying from China cheaper). Then what? Then they had no competition. Once they distroyed them what happened? EVERYONE who once bought at those small town stores now had to buy from Walmart, including the former owners and employees of those stores. They no longer had competition. Walmart made more and more money. Was that bad? Not for them, but you realize that by people buying from Walmart, they were giving the Chinese more money too.... which closed our factories, which distroyed one small US business after another, and lost jobs. Our unemployment figures are low right now. They don't take into account the number of people who gave up looking for work, who took far lower paying jobs (union factory workers who once made $40/hour and could support their families took jobs at Walmart for $8/hour because there were no other jobs in their town?). Some started new businesses, some started trading full time from home, some found new jobs. Americans are very creative and resilient. It's not all doom and gloom... yet. But there's a reason that any economist who understands the real world will tell you that a strong dollar is NOT always a good thing AT ALL. So while I was forced to take 6 semesters of Economics in school (Georgetown School of Foreign Service), I don't remember much of it. I don't know what book you're talking about or even who that guy is. But that sentence makes more sense than almost any other economics explanation and actually summarizes current world economics very very succinctly and accurately.
That explains your logic. You fail to realize that ONE sector of the US economy will do poorly, exports business. While others sectors will do better. Lets say you save $1000 a year because you buy cheap shoes from vietnam, you go to merryl lynch and put that $1000 and daytrade IBM stock, you just 'stimulated' the financial services industry which will SHOW UP ON GDP figures. Also what your not realizing is that vietnamise will get dollars as payment, what do you think their going to do with it?Chances are they will either buy US goods and services or they will invest here(through stocks or treasuries). If americans save money because everything in the world is dirty cheap they will spend that additional disposable income on the service sector of the US(because they cant get as good as US services in other countries, chinese might be good making shirts but they aren't at making brokerage firms, insurance companies)
Er... exports? Ok, lets say they want to buy something made in America (the first DVD or CD, so they can make 1,000,000 $.10 cd copies of it to sell for $1 their currency). That DVD costs them $15 USD. If their money were $7.50 yuan, then $15 USD = 112.50 yuan. If their money were $8 yuan (dollar stronger), then $15 USD = 120 yuan. If they can buy that same DVD in Europe, and it's only $112.50 yuan, just why would they buy it in America? DVD's are a bad example. But what do we have for export that they would want? All I can think of is food, raw materials, and commodities. Possibly some advanced technology or machinery, tho with the exception of military, even Caterpillar has a plant to make machines there cheaper now than in the US. For every penny the USD gets stronger, the less they can buy FROM US. So it becomes prime incentive to shop anything they can find in the rest of the world, or make it themselves. This benefits their economy in the form of growth. Not ours. Insurance? Brokerage firms? Cheaper in the US? You must be joking? China's Hang Seng market in Hong Kong is KICKING OUR ASSES in the market. Go look it up. Further, WE Americans are buying up the Hang Seng because OUR financial analysts for the last few years have been recommending 'emerging markets', 'International' stocks. Go check out the TOP performing mutual funds on Morningstar. ALL foreign. HELLO? Insurance? OUR premiums, which pay OUR hefty salaries are cheaper than they can get in their own countries? You must be joking? There's not a nation on earth that doesn't supply these services cheaper, so much cheaper that we even outsource basic things now like tech support and customer service... in ENGLISH to these other nations. If they wanted to buy a non-Asian Insurance policy, they'd buy an American one? With all the US insurance company bankruptcy record from Hurricanes from Andrew to Katrina? You're joking? They'd buy from Lloyd's of London, who's been around, reputably, reliably, for 200 years. Further, Lloyd's being British, is the natural place for Chinese to go anyway, they probably still have branch offices conveniently in Hong Kong, the BRITISH colony for 99 years that was only recently returned to China but still has autonomy and still using the British system? WHY would they want to buy AMERICAN insurance when British Insurance blows us away for longevity, reputation, and reliability? We go spend our dollars in our stock market? The US savings rate today is the lowest in 100 years? Well, ok, in the HISTORY of the USA? HOW MANY PEOPLE are going to the stock market to 'save'? Not many. We spend money like crazy on credit cards. We build up debt out the wazoo, debt BOUGHT by those nations, and then we pay those people interest. You and I may 'invest' in the stock market, but surely you are not so illiterate as to never have read the plethora of articles on the low US savings rate today? Exports are good with a strong dollar? Omfg. If you don't get it, I have a suggestion. Go take a trip to ANY COUNTRY in the world you think a strong dollar is good for, because you are very obviously not widely traveled. It's something you MUST MUST see for yourself. I was in China this summer. I don't know what garbage you learned in school, but economics can never be fully understood til you actually SEE it happening for yourself, and what the strong dollar has meant for OUR economy compared to theirs. There's a reason the sentence in the book is stated, and perhaps if you can't understand it fully, witnessing the results will give you a clue.
Because the people around the world HAVE NO CHOICE. Hes got a fking dollar bill on his hand, what do you think hes going to do with it?I dont they will use to heat their homes in the winter. If he sells for euros or yuan someone is going to get it, what do you think hes going to do with it? They can keep selling and selling(thus driving the exchange rate down and weakning the dollar) eventually they will end up buying a US good, service, stock , treasury. Meaning they will either spend it or the government will spend it which will SHOW UP AT GDP Think a little more. Treasuries are huge 'export' for the US, meaning the government is building schools, making bombs(stimulating defense industry) hiring people who go on to use the wage to buy at wal-mart etc. Plus your forgetting all the consulting companies, investment banks(goldman), microsoft software(with piracy or not they still make money), dell computers, regardless of where is manufactured the profit margin is american Since 2001 IPOs are more and more being made abroad and the dollar was WEAK, see?That wasn't caused by a strong dollar but by sarbanes-oxley and other regulatory burdens thats the key word there. Cheaper. You think worldwide airlines companies like to buy cheap planes?Think again. Boeing is the world leader Thats because people are spending money, which shows up at GDP figures, whether you pay $100 in commission or in a xbox cd is the same for statistical purposes Show me where I said that
A strong $ is good for the American economy ( eco - nomy = home - how to govern it). It will give Americans the ability to buy more foreign goods and it will force them to innovate and produce goods where they have a comparative advantage (aircraft for example).
Read this article.... http://www.mises.org/story/477 A far better explanation than those previously given on this thread, and quite fortuitous at that. The point being, perfect knowledge of economics won't make you billions. If that were the case, then Mr. Sennholz would surely be a billionaire (which I don't think he is IMHO- The framework of thought, and analysis, among other personal attributes, has contributed to the enormous success of Soros. The point I was trying to make instead of debating the semantics of economic theory is that we must know how to think, not what to think. The Chinese have mastered the art (or science) of replication, i.e. WHAT, and (some) Americans have mastered the art (or science) of HOW to think. Is Soros ignorant in economic theory? Maybe in some aspects. Is Soros ignorant in economic practice? $ $