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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (22530)	12/3/2004 2:41:44 PM
From: kodiak_bull	Read Replies (1) \| Respond to of 23153

Scott, I think the near and medium term fate of the dollar (its exchange rate, that is) is an interesting area to discuss. "Strong" currencies sound good, but my experience with countries that have strong or strengthening currencies tells me that it is not necessarily a good thing as you play it out. For example, Japan made its greatest gains with a weak currency, during the 1960s and 70s, when the yen traded at 360 or so to the dollar. When I lived there in the 1980s and 1990s the Yen had strengthened to 120, then 110 and then to 80 to the dollar. In the late 1980s the Nikkei soared and then crashed, and Japan has been in the tank ever since. A strong dollar seems very helpful if you are 1) importing inputs that will later be sold in the domestic (US) market, 2) importing and consuming foreign sourced goods (beginning with oil, and marching through autos, furniture, etc., and 3) expanding overseas, by merger, acquisition or funded growth. Much like the tourist who finds a dollar buys a stack of zlotys, a strong currency is best if importing, buying and consuming or travelling throughout the world. Assuming a competitive world (which is what we've got), a weak or weakening dollar is helpful in reverse, if you are 1) exporting commodities, goods or services which will stay overseas, 2) expanding operations and distribution domestically, and 3) competing with foreign (now expensive) goods and services anywhere. The argument has been made that a falling dollar will cause our interest rates to rise and inflation to occur. Maybe. But inflation occurs when producers have pricing power. Anybody seen any pricing power lately except for commodities and items like the iPod? Too much factory production and to many producers exist, capital is readily available and innovation advances. I am astounded at the prices you will pay for a new state of the art DELL computer, flatscreen, etc. I realize that these observations are not dispositive, but it is interesting to see the fate of strong currency countries over the past 20 years; I can think of Japan and most of the European countries as those with relatively strong currencies and which have floundered. China, by keeping its yuan relatively weak (there is no doubt that it would rise if permitted to float, the definition of an artificially weak currency, I would guess) has prospered. Korea's currency has gone from 500 to the dollar in 1976 to about 1100 today. On the macro issue of federal funding, I think there are long term issues that have to be addressed (we have a lot of long term issues that have to be addressed, always have, always will), from a consumer's point of view, if one is not traveling overseas or buying French and Italian fashion, I'm not sure that the average consumer will get whacked by a weakening dollar. One would have to weigh it against the rise in jobs and general economic growth that healthier industry would provide. Kb