Mish, just as an experiment, ask around and see if you can find anyone who can tell you what the negative economic impact of a USD index some 10-20% lower is.
Here's some of the benefits:
It would generate some much needed inflation, but probably not enough. This gives domestic biz some pricing power and reduces the burden of past dollars - ie, debt.
It would force foreign competitors to either take a hit on margins, by keeping prices competitive - or, force them to raise prices and lose market share. This in turn would make their capital markets less appealing and thus their currency less atractive. The data is that exporters tend to do the former, price to market and take the hit on the margins. This is why a currency correction is not a one time charge - it persists and weakens industry over time.
US exporters would reap the benefits directly to the bottom line, boosting corporate income and in turn boosting tax revenue. Areas which greatly benefit- agriculture, tech, machinery and trans, and the fastest growing segment of exports - services.
Trade imbalance would reverse - which eventually will attenuate the fall in the dollar.
Tourism goes up domestically vs foreign travel thus ofsetting some slowdown in consumer spending. A minor issue in the scheme of things, but big news to tourist dependent economies like Spain and Greece, who will suddenly wonder what the EU has done for them lately. Left to their own devices, they would outrun any dollar depreciation and remain an attractive place for tourism, but such an option is completely closed.
The USD needs to go to 90, and that's been the plan from the beginning of the currency wars. All the talk about a Euro being weak when it first came out and how it would never survive casted the die into which it must now fit. Announcing the Euro - A comparable currency which has one goal - stability. So competitiveness is sacrificed for the long term goal of attaining reserve currency status.
The problem with this goal is that eventualy the euro will grow weak pursuing it's outward goal of stability through tight monetary discipline. Inwardly, the profitability of European biz shrinks vs it's US competitors and capital flows out of Europe into more attractive locals. Laboring under the illusion that monetary policy controls currency flow, - it doesn't - perceived return in equity markets does - capital will eventually flow to the most profitable - to get specific - company.
Cheers,
Josh. |
