WASHINGTON -- The U.S. dollar has fallen 9.5% against major currencies since Henry Paulson became U.S. Treasury secretary 16 months ago. His response has been to repeat the mantra that a "strong dollar is in our nation's interest." What would it take to make Mr. Paulson and Federal Reserve Chairman Ben Bernanke, who has seen the dollar fall 11% since he took office in February 2006, respond to the dollar's drop? And what could they do? The U.S. government hasn't many options if it wanted to arrest the decline. It could use stronger rhetoric to talk up the dollar. It could, in coordination with other countries troubled by the dollar decline, buy dollars in foreign-exchange markets. Or the Fed could raise interest rates, since money flows to countries with higher rates. Neither the Bush administration nor the Fed has shown any inclination toward any of those, preferring instead to let market forces operate. In testimony before Congress last week, Mr. Bernanke said he remains "optimistic" that current U.S. economic conditions "will lead to a sound dollar in the medium term." http://www.moneyweb.co.za/mw/view/mw/en/page94?oid=170153&sn=Detail
so long as morans like these are running America, there is no way US is going to see a better future, there is no way they are going to do anything to save the dollar http://en.wikipedia.org/wiki/Mike_Feghali "Mike Feghali (born in Beirut, Lebanon) is an employee of the Federal Bureau of Investigation (FBI), the supervisor of the Arabic, Persian, and Turkish desks of the Washington, D.C. field office, upon which FBI agents nationwide rely for translating documents and audio recordings from those languages into English. Feghali, who has worked for the FBI for several years, is a naturalized U.S. citizen. He holds several degrees in foreign languages." * Feghali, along with employees under his supervision, routinely mistranslated documents, or did not translate them at all, if they involved information detrimental to certain undisclosed organizations, of which Feghali or others might be agents. * He hired unqualified personnel as translators, many of whom are his friends or relatives, despite a lack of proficiency in either English or the foreign language required for the position. * He and his subordinates conspired to deliberately create a backlog of documents awaiting translation, thus seriously hindering ongoing investigations. This was allegedly done for the purpose of creating the impression that the translators were overwhelmed with work, thus necessitating a higher level of funding, which would be used to hire additional cronies to lucrative translator positions. * He and other FBI translators threw a party shortly after the 9/11 attacks against the U.S., at which traditional celebratory date-filled cookies baked by Feghali's wife were served. During this event an employee loudly proclaimed his joy by shouting, in front of Feghali and others, that the U.S. had received "a taste of what they've been giving the Middle East."
US doesnt have forex reserves to buy the dollar with(they have very little). they would have to ask for the ECB, bank of canada,etc to prop up the dollar. they know the chinese would be able to point fingers at them for manipulating the dollar value and would have an excuse to not prop up the yuan, plus guys like paulson know it doesnt work, if he does it, it will be out of political pressure
This "inflation tax" is the policy of the current adminstration. Ron Paul is the only presidential candidate who is even talking about these issues.
The Fed rising rates would kill the US economy, yet oil prices would keep quite high. A strong dollar would hurt america exports. It would also make oil too expensive for europe, sending them in an severe recession. Europe can't export much either, their higher wages, tight labor requeriments, and super high taxes, make them a no-no when you can manufacture in China at pocket change with almost no taxes. So, in short, a strong dollar would hurt both US and europe.
When you live above your means by borrowing as we did during a good part of the Reagan era, and we are now doing to the extreme in the Bush II era, you create an impression of prosperity. Jobs are created, the military industrial complex expands, and the stock market goes up. Politicians repeat the mantra of supply-side economics. This, because it is very popular with the electorate and therefore with politicians, can go on for a very long time, but not forever. During this time of false economic expansion (false because it is created with borrowed money spent on wasting assets) the debt created is monetized. This results in it being paid back through inflation rather than direct taxation. The effects of the two are similar but not identical, as they impact the same segments of society differently. On balance monetizing (i.e., printing money) benefits those with long term debt, the Government, mortgage holders, corporations, etc. the most, and to a much lessor extent those with only short term debt. Those without debt and those who are net creditors are harmed by the debt being monetized. The average citizen with low income, low debt, low return on savings, and without disposable income to invest may end up paying more than their fair share of the Government debt through inflation than they would have otherwise paid had they been taxed directly. In other words, a weak dollar is not necessarily harmful to some segments of the economy, and the alternatives, i.e, increased productivity or direct taxation, may be impossible to achieve or politically untenable, so the incentive to intervene may not be there, even though the rhetoric suggests a strong dollar is desirable. In the end, however, we may be forced to act in a politically non-expedient way if our creditors throw up their hands and say to us: "no more cheap dollars."
Republicans devalue the dollar. This administration is a replay in some ways of the Reagan times. It was Baker's trick then. Democrats run other scams - but not with the dollar that I know of. It is probably naive to think that US authorities have not contemplated something like currency war scenarios or other extreme turmoil.
I would agree that neither democrats nor republicans have been particularly good stewards of the economy and our currency. It does seem to me, however, that we have somehow got ourselves headed in the direction of a permanent war economy, and that is the main driving force behind ever increasing debt. That must change if we want to survive as the nation we now think of as the United States. And that, I suppose, means we will have to make dramatic changes in our foreign policy.
This is all out of everyone's hands. Most of it is an inevitable consequence of globalization as we decrease and the rest of the world increases. There simply is no way, in an interdependent world, to avoid the monstrous, black hole market forces sucking every country into it. Seriously, what could Congress or the Fed do that would have significantly changed all of this? Not much really. The dollar is going to settle where it's going to settle and there's no nation that can stop it: even the Chinese will eventually have to unpeg the Yuan. You can't swim upstream forever... Of course, I agree that with low taxes and properly structured taxes, etc., things could be significantly different. But this, after all, is the real world where governments are a black hole in themselves, slowly sucking the life out of its citizens while the citizens cheer and laugh...