Wednesday, August 12, 2015

Strong Dollar vs Weak Dollar?

I believe strongly in a strong dollar. A strong dollar benefits everyone who saves dollars, who is paid in dollars or who spends dollars. A weak dollar benefits holders of rival currencies, debtors and niche players. Arguably, debtors and most niche players might also benefit long-term from a strong dollar.

An example of a niche player is a Manhattan hotel who caters to Chinese tourists. If the Chinese devalue the yuan the hotel might see a sudden decline in guests. In my view they are being short-sighted. Their assets have held value, especially against the yuan. They also have a new potential market, holders of American dollars whose purchasing power has also held its ground.

Exporters can also be short-sighted. Devalue the home currency and foreigners suddenly see your product more attractively. That is because your product has lost value with the home currency devaluation. The exporter's assets and savings are devalued along with the native currency. The number guys sometimes overlook those details.

Larry Kudlow used to be on CNBC and he would tout King Dollar. Now CNBC is staffed by talking heads who whine about the evils of a strong dollar. Donald Trump complains about the Chinese "manipulating" their currency. Fox News will periodically voice similar complaints.

 I say, let them manipulate. If we can assist them in this endeavor, let us do so. I will admit a certain bias here. When I hear anyone sell the advantages of a weaker native currency I think FLIMFLAM! It is the trickery that is at the root of our country's economic decline.

The strong dollar people, few in number and small in influence, have not sold the merits of a stable currency to the public. Perhaps the most important question will go unasked by the millionaire pundits: "Mr. Candidate, do you prefer a strong dollar or a weak dollar?"

1 comment:

Hoosierman said...

Correct. It's a race to the bottom. The US is in such bad shape because it destroyed its manufacturing base with burdensome regulations and excessive and complicated corporate tax. There is a economist at Boston University who is hardly a supply sider who maintains that eliminating the tax code would give every American about an 8% increase in income.