ild, I think you have to value it against all of those yardsticks and more. For example, when folks were screaming about "king dollar" a few years back, it was depreciating a third against the Yen. I believe the dollar index is a basket of foreign currencies. How they are weighted is subjective and may or may not give a decent clue as to the buck's value.
We cannot know how much the dollar is overvalued until we can drag the fluff out of US economic stats. But I do know that Greenspan has inflated our credit supply without receiving a commensurate return in capital investment. In other words, the money has mostly been spent on financial fun and games, not on productive America. To be fair, most capital investment is derived from savings, not from credit creation, and we don't have any savings.
The high credit/low capital investment ratio makes the dollar a basket case longer term vs. currencies where capital is being plowed back into the productive economy. However, the buck does have the military power card backing it and it is hard to know how much we should weight that factor.
My estimate is that the dollar is about 15% overvalued vs. the Yen and about 20% overvalued vs. the Swiss Franc, the two currencies on which I have the most history and confidence. I think it is also overvalued vs. the Euro, but there my thinking gets pretty muddy, as we haven't seen how the European Currency Board will react in various crises and a lot of the valuation there has to based upon best guess.
I do believe that yesterday O'Neill let slip the callow administration's idea that a weak dollar will increase exports. He backed away from his statements after the world had a cow, but so did Jim Baker when he decided to take the dollar into the toilet in the mid to late 80s. |
