George Dubya has the 'midas' touch, even that bastion of capitalism Syria has seen it's currency, the Syrian pound, climb against the US dollar! Might have something to do with the Bush tax cuts, the Bush endless trillion dollar GWOT, and running the printing presses full speed at the Fed. Every time the Fed lowers interest rates the price of a barrel of oil goes up $20!

Not to worry!  We still have plenty of businesses foreigners will want to buy -- think DynCorp and Blackwater on the block.

In fact the next time you see those gun-toting, Wayfarer-wearing mercenaries on the streets of New Orleans they'll be taking their orders from Russian oligopolists, Saudi sheiks, and Burmese generals.

Could this be another example of the curtain being pulled back on American capitalism's wizard? Ah, the great and powerful Oz...I mean dollar.

I've been saying for years that ultimately we've been playing with monopoly money - only worth what we pretend and can convince others to believe it is worth. We've created a complex tangled 'global' economic system. It's driving force has been inbridled greed. The cynic in me believes this cimplexity was to hide our greed, robbery and tricks. And now it would seem to have gotten out of our own control and gone beyond our understanding. And so we find ourselves at the mercy of a monster of our own making. If so many people weren't going to suffer terribly I'd be laughing right now.

If we left the gold standard in part because of Vietnam debt, what options do we have now with this horrific Iraq/GWOT debt? With the dollar in reality not worth the paper it's printed on maybe we can pull another coup to save our bacon. Maybe we can convince the world that red is the new black and (-) is really a (+). Maybe we can say about the dollar what all the old comic book or baseball card collectors used to say all the time to justify gross overvaluation - "hey it may be worth something someday".

When we don't allow some friendly Arab country to buy a few container port operations -- what were they going to do? Put them in their pocket and walk them to China? -- we sent a message that we actually do not believe in free and open markets (no surprise there!) but were actually xenophobic, two-faced hypocrits.

If I were them I'd be out of the US dollar, too.

Of course, at some point the $ will be cheap enough and, therefore, our assets, and we'll be desperate enough to sell the crown jewels at any price.

Boeing's new headquarters in Shanghai, anyone?

Boeing isn't moving, in fact Boeing is absolutely loving this. The way things are going, Boeing will take 100% of the market - Airbus is already making distressed noises that they are unable to compete against Boeing given the current US$/Euro exchange rate. If anything, weak dollar might make some of the outsourced manufacturing jobs return to the US.

Now I only wish I didn't have any US dollars... good thing I'm earning Euros now!

I disagree. The falling dollar is not a crisis and candidates shouldn't be talking about it much.

The decline of American power and prestige has been caused by George W. Bush. It will take the rest of my life, and then some, to repair the damage. Instead of tearing down one another, Obama and Clinton should be competing to talk about this.

Cheap Chinese imports are not good for Americans. Toys painted with lead poison our children. Inferior cloth wears holes and bleeds colors after only a few washes. Screws molded from inferior metal break under the torque of a manual screwdriver. Fiber optic Christmas trees wired with inferior copper burn out after a year or two, if they don't burn down your house.

Instead of quality products and good jobs, Americans have a bunch of inferior garbage and a ton of debt to show for our wonderful strong dollar. Let it fall.

I don't have a timeline, and I may be into some wishful thinking, but de-globalizing and re-localizing the economy will be what the future holds in store. Although global trade has been going on since the days of the Silk Road and the Phoenician sailors, the difference now are the things that are traded. Getting back to basics will be a top priority, especially when the skewing that cheap oil has wrought gets taken out of the equation and we are left having to do things with muscle power again.

I just hope America does not go down the road of fascism in the face of power-down, but I'm not holding my breath on that. As for next year's election, I don't have much hope that any of the candidates will veer from the PNAC agenda of Pox (not pax) Americana, that is if something doesn't happen between now and then that will enable this administration to forego elections altogether.

Personally, I don't see any real hope for America until our country and its hubristic ego is utterly crushed. Maybe then people will know the real value of life and not just its price.

********
- We do not act rightly because we have virture, we have virtue because we act rightly.

I am sorry to have to disagree, but the US dollar has been substantially overvalued for at least 5 years and it has been killing what remains of productive US exporters. A re-balancing between imports and exports may be painful but it is healthy for the US economy in the long run.

sPh

Re: Iraq is obviously the big-ticket item, but the US has troops deployed in at least 130 countries around the world today.

Plus ca change, plus la meme chose. We had those bases in the 90s too (or others like them)-- on top of the Gulf War I and the over-the-top Reagan military build-up of the 80s. Iraq is the real budget-buster in the military budget. End the Iraq War, sunset the tax cuts and do something serious about healthcare- the federal budget will be back in the black.

Re: But people who commute long distances to work (and live in areas with little public transportation) will be hard-pressed to conserve gasoline.

Several strategies:

A) Work from home a day or two a week
B) Carpool
C) Use the car a lot less for non-work commutes
D) Buy a hybrid
D) If all else fails, move closer and to hell with worries about kids going to whites-only upper-crusty schools, the snob appeal of gated communities and so forth.

sp healey and Neolotus--    Thanks for joining in.    

 Sp Healey--I agree that the dollar has been substantially overvalued.  So the re-pricing is "fair."

     The problem is that many families who live on the bottom two  steps of our 5-step economic ladder will suffer. They are not the people who have been designing our energy policy. They are not the ones driving gas-guzzling SUVs. Their wages (adjusted for inflation) have not been going up -- and a jump in inflation will hit them hard. 

note to jpf 311-- most of these people do not have the option of working from home two or three days a week, or buying a hybrid--too expensive. Car-pooling works for people living in densely populated suburbs--who all work in the same general area (i.e. midtown Manhattan or Wall Street) but it doesn't work for people living in sparsely populated rural areas.)  

  Sp Healey--  Ideally, a weaker dollar would revive U.S. manufacturing and provide many workers with better-paying jobs. But I just don't see that happening. We have become a service economy in part because the cost of living (and therefore wages) in this country make most of our products very expensive when exported abroad.     

 Even though the fall of the dollar has brought the prices of our exports down, it can't begin to bridge the enormous gap between the cost of labor (including benefits) in the U.S.versus salaries and benefits in the developing world. Even when workers are relatively well-paid in these countries, the cost of living is just so much lower . . .

               We can produce luxury items (though in this area we don't always compete well with Europe) but we can’t compete on textiles, most clothing, low-cost autos . . .

At one time, we had a lock on products like laptops. But that is no longer true. China can compete with Dell (in China’s own market) where they can offer a good product--and service centers where the personnel speak Chinese.  

The cost of health benefits also makes our products more expensive. And even if we have national health reform, employers will be expected to spend as much as they do now to support national health insurance.

The good news, for employers, is that they will no longer be on the front lines absorbing further health care inflation.

Neolotus--   One can argue that it would not be a terrible thing for this country if, like Great Britain after World War II, we ceased to be the world's #1 economic power. Certainly, we haven't handled the job very well.  

 But if this happens too quickly, the people on the bottom half of our economic ladder will suffer. This is what concerns me. The dollar has been falling quickly. Look at the price of gold. This signals that professional investors are bracing for a currency crisis. 

I'm pessimistic, JPF311.  The 5 "superbases" in Iraq will remain after the "end" of the Iraq war.  The basic Pentagon stratergery requires it - "Lilypads" for the deployment of light forces in the region.  Plus, the PDAs (Poduction Sharing Agreements) with non-Iraq hydrocarbon harvesters require the bases just of protect the oil and gas infrastructure.  But my idea is that cost of establishing and servicing those bases, wherever they may be, is increasing, and factors such as the declining dollar will add significantly to this increase.  Less directly, there are the initial costs which have included in several cases since Dubya arrived the forgiveness of foreign debt, say for Pakistan, Uzbekestan and so on.  You don't really "forgive" a debt like that...you assume it.  But its hard to count given secrecy and security considerations.  I've read that the Pentagon doesn't even have a figure, and what it does have typically excludes many factors such as how much does KBR charge to run a base.  

I just don't think ending the war in Iraq will be that significant with regard to our domestic economy.  Not because it couldn't, but rather than whatever military assets are freed-up, they will simply be redeployed elsewhere.   

Neoboho

It appears to me that there's a similar breakdown in economics as there is in global environmentalism. And perhaps it's no irony that the two are at times essentially the same.

I've often wondered at the blind optimism we seem to have regarding continued growth in profits and and in markets. There was always something that just didn't add up. The thing that really gets me is something that seems both basic & obvious - population. We now total what, somewhere over 6 billion people globally? Fossil fuels ARE finite, to argue otherwise is just silly. New nations in the industrialized ranks mean more demand on all resources - food, fresh water, fuel, jobs. Just how many pairs of Diesel jeans are those new 'wealthy' Chinese or Indian workers going to be able to afford? How many Wal-Marts and McDonalds will we need to foist on the world to keep thing rosey? What about here? What yet to be defined jobs will satiate our own nation's growing needs? I often wonder if anyone is really doing the math on all of this. Water in particilar will almost certainly be an issue in future elections. The war for this has yet to be recognized but it's there. This will impact food supplies, and both together will impact worker's lives & jobs. The dollar is of concern for sure but what of the larger 'life' forces which hang on the brink & yet receive far too little attention?

All on all I am rather scared of what is to come in the remaining years of my life, both for me personally and that will determine whether I have a family or not. 10+10 people is still twenty. And if we can only hire, feed and provide jobs for 6 there's going to be a problem. And it won't go away when you add 10 more people to the equasion. Is there some math I'm just not getting? I just can't help think about all of these things as closely related. It confuses me but not as much as those who think the US dollar is some mythical god-like entity that, if prayed & sacrificed to enough, will somehow deliver us from our man-made hell. It all just seems much much bigger than that and I truly want to be optimistic...I'm just finding it hard to be right now.

Re: Not because it couldn't, but rather than whatever military assets are freed-up, they will simply be redeployed elsewhere.

I see things very differently. The population is sick and tired of war, just as we were at the end of Vietnam. If a Democrat sits in the White House two years from now s/he is going to have a lot of festering domestic problems that will take precedence over foreign adventurism. Healthcare for example. I don't see us indulging in a lot of expensive military extravaganzas in the immediate future, post-Bush. Neither the will nor the $$ will be there.

It may be inferior garbage but it's shiny, plentiful and cheap :-)

  Again, thank you all for your comments. It's good to hear new voices joining the conversation.

 McBoo wrote: "Water in particilar will almost certainly be an issue in future elections. The war for this has yet to be recognized but it's there. This will impact food supplies, and both together will impact worker's lives & jobs" 

      This is an extremely important point. I'm afraid water will become a commodity -- like oil. We will need some global oversight to make sure that it is fairly distributed; we can't let profits decide how it is allocated, unless we want world-wide wars over water.

    But I'm not quite as pessimistic as you are McBoo. The only way that we are going to be able to survive as a globe is if we begin to share the world's resources. The traditional divide between "the West" (the haves) and "the Rest" (the  have nots) won't work any longer.

  The good news is that "the Rest" are already moving up--whether or not we want to share. Living conditions are improving in many parts of the developing world--hence the greater demand for food, energy, etc. In the long run, this is good. And China's growth will benefit many other countires in Asia.

     I'm hoping that as other countries become more powerful they will also be more realistic than we have been. Hisotorically, we have always been hooked on the idea of infinite growth. This country seemed so rich in natural resources, and then, too, we believed that a Christian god smiled on us.  . . .Manifest Destiny. 

    Other countries tend to take a less optimistic view of things--which means that they are more likely to recognize that resources are finite. Certainly, other countries have taken global warming far more seriously than we have.

. Randy b wrote: "The underlying assumption behind Government Bonds is that they will one day be paid in not-too-inflated dollars that will buy real goods and services. Those bonds aren't really being paid, though, just replaced with new bonds. Someday the music will have to stop, won't it? The other assumption - that our children, or grandchildren will enslave themselves to the bondholders and pay the bonds off with real goods and services seems unrealistic. Our children will, one way or another, repudiate the debt."

Randy B--It's very hard to predict what our children and grandchildren will do, but if I were a foreign govt, I definitely would be shifting out of U.S. Treasuries.  Over time, it does seem very likely that those bonds will be worth less and less.

JPF 311 points out that the U.S. govt has never defaulted --which is true. But state and  municipal governments have. That said,I don't expect a default by the federal govt anytime in the foreseeable future. I suspect that our economic decline will be more like the decline of Great Britain after WW II.

Btw JPF 311, when you write that " Working class folk live in older, declining suburbs closer in and usually have less communting distance. Most people I know of this sort have ten miles or less driving distance to get to work." it strikes  me that you don't know many people in the West.

The argument made in the piece takes the side that higher dollar value represents a stronger economy; which, at least from a capital market perspective, is sensible. But there is counterargument that a cheaper dollar energizes the domestic manufacturing and trade markets; which is also sensible.

A cheaper dollar hurts return on capital, which constrains credit and deflects capital. We've been living for 25-30 years in a capital expansion where foreign investment has been a staple of the economy. Lower the value of the dollar and the ROC and foreign investment migrates to better returns. The current state of economic equilibrium will change if the dollar remains cheap.

A cheaper dollar improves industrial output, exports and GDP. Imports become more expensive, the arbitrage between US$ and foreign currency tightens which encourages domestic production, and while gross economic growth slows, distribution of the slower growth is more broad (a teaser for progressives). Some might even argue that the resulting cooler economy spurns irrational exhuberance in favor of the slow and steady. In this scenario a gold standard would be more hurtful than helpful.

As for debt ratios, a cheap dollar helps balance trade deficits, as imports become more costly and exports cheaper. 2006's US trade deficit was 6.4% of GDP. Imagine if this were flipped and that $860 billion stayed in the US.

Couple this with higher taxes (roll-back or expiration of the Bush cuts) and we could see surpluses again. If we're really smart, we would also address the cost of healthcare, which would be a further benefit to the middle-class.

I don't want to oversell the value of a cheap dollar, but imperically we can see that the capital-market fueled economy has bypassed the middle-class no matter who controls the Whitehouse and/or the Congress. The result has been, predictably, a massive redistribution of wealth to the wealthiest 2%, and the rest of us with credit card debt, negative-amortized mortgages, and no longer a sense that incomes will rise to meet these challenges.

It would be nice to see the middle-class with more money in their pockets from real wages, and not just Walmart's $2K promise in annual savings.

/c

In the blogosphere every one is an expert, so no one is an expert.

Maggie, fair points about American manufacturing, but I think there’s actually more to it. We hear a lot about mill closures, whether they be textile or furniture. And Detroit it seems is always about to crater. But beyond the most media covered stories, there is a considerable manufacturing infrastructure that continues to outperform its rivals in productivity measures.

The Institute for Supply Management reported earlier this year upticks in raw material orders in the following manufacturing sectors: nonmetallic mineral products; fabricated metal products; food, beverage and tobacco; chemical products; petroleum and coal; computer and electronic products; transportation equipment; machinery; wood products; textile mills; and electrical equipment, appliances and components.

What’s missing from this list is finished goods manufacturing, which as you pointed out has gone offshore and is hard to compete with when considering cost of living and wage disparities. Just the other day I heard a report on NPR about sock manufacturing wherein Jimmy Baker, owner of Baker Hosiery, explained his company’s economic disadvantage is in stitching the toe of the sock, which is labor intensive. Up to that point in the manufacturing process, costs are the same the world over—same yarns and same sock making machines. Likewise in other “unfinished” manufacturing sectors, worldwide costs are pretty much in parity (in fact transport and electricity may even hand some US firms an advantage). It’s in brute labor that we cannot compete with Honduras (in the case of socks), China and India.

Raw, component, or unfinished goods, live in a different economy. As Jimmy so ably pointed out, raw materials and machinery are the same cost the world over. Lower the cost of the US dollar and we’ll see foreign demand for such unfinished goods increase. Some commodities are uniquely regional and therefore immune to a cheap dollar; think minerals, ores, and wood pulp.

We will not see the garment mills in North Carolina come back on line (remember when they were in Wooster and Bridgeport?), but we will see increases in textile manufacturing. And while highly automated manufacturing may not produce the same volume of jobs as Detroit did a century ago, they nonetheless do increase employment and actually create better jobs (even in the hey day of American manufacturing, no one would turn a job down at the Bethlehem Steel for a job in the Triangle Shirt-Waist Factory).

Manufacturing accounted for 14% or GDP and 11% of the labor force in 2006. As such, even minor increases in the percent of GDP and labor force have profound domestic economic impact. It represents money that stays in country and enjoys better distribution than capital-based industry.

As for the European luxury goods, I’d be surprised if they continue manufacturing them in the EU at the current rate if the dollar stays down. In the short term, Europe won’t raise the prices of goods sold in the US because the American consumer will spurn the increases and the American market is too important to Europe. This will force Europe to offshore the manufacture of the goods. Europe will need a partner who can be trusted to maintain product quality and their intellectual property. The US may be just the right solution.

/c

In the blogosphere every one is an expert, so no one is an expert.

And exactly when have George Bush or Dick Cheney or any of the Republicans -- and many Democratic elites, for that matter -- given a second thought to "families living on the bottom half of our economic ladder"? Their only response to problems people are having on the bottom of the ladder, is to climb higher!