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Home Front Economy
Dollar Dips to New All-Time Low Against the Euro
2007-09-12
BERLIN (AP) -- The dollar sank to an all-time low against the euro Wednesday amid speculation that the Federal Reserve will soon cut interest rates by as much as half a percentage point. The 13-nation euro rose as high as $1.3889 in afternoon European trading -- breaking through its previous record of $1.3852, reached on July 24. That compared with the $1.3832 it bought in New York late Tuesday.

The euro's strength threatens to make European exports more expensive, and therefore less competitive -- although the currency's movements this year have been gradual rather than abrupt. The strong euro "is weighing on growth," French Budget Minister Eric Woerth said after a Cabinet meeting in Paris on Wednesday.

The dollar, which has hovered within a few cents of its record low in recent weeks amid a crisis over U.S. mortgage lending, has come under new pressure since the U.S. Labor Department issued unexpectedly poor August jobs data Friday. The report heightened speculation that the Fed will cut interest rates at its Sept. 18 meeting. A cut from the current rate, 5.25 percent, would be the first in four years.

The European Central Bank last week put its own two-year run of gradual interest rate rises on hold, but left many economists still expecting a quarter-point increase from the current 4 percent before the end of the year.

The dollar was little changed on Wednesday against the British pound, which edged up to $2.0321 from its level of $2.0317 in New York late Tuesday. The U.S. currency was lower against the Japanese yen, even as Prime Minister Shinzo Abe announced that he would resign, putting an end to his troubled year-old government. The dollar slid to 113.85 yen from 114.30 yen.
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#11  Complaining about mercantilism

Not complaining. I acknowledge mercantilism works to acquire the highly productive jobs within a society. What I object to is a laissez faire attitude while the competition eats our lunch (and future) with protected markets and predatory trade practices. It is just as stupid and destructive as fighting a politically correct war against a barbaric and ruthless enemy. Free trade is for those with similar levels of development and political systems and must be mutual. Not this free trade for thee, but not for me system currently in place.

manufactoring accounts for less than 25% of their GDP.

Farming, mining, and manufacturing creates the excess goods that allow the other professions to exist. A service job does not create the high multiplier effect as goods production. Try creating a society of lawyers suing each other for their daily bread and see how long till starvation takes over. Also no society produces enough highly intelligent people so that they can all be doctors, engineers or accountants. Productive work must be available for the average and below worker. Otherwise you will get a permanent class of drug dealers, thieves, welfare recipients and prostitutes. Not my ideal of a society.

The economy works by time exchange, not goods exchange.

Not all time is equal. The autoworker makes 5 times (plus bennies) what a burger flipper makes. Yet they come from the same socioeconomic background and unlikely to have any intelligence differential. These are the people who are vastly underutilized today. The difference is that a great deal of accummulated capital (that is leaving the US at an unprecedented rate) is invested in creating the the highly productive autoworker's job and very little invested on the Burger King worker.

So let me see if I got this straight. We get furniture, electronics ...

The exporters get new factories, automation, roads, buildings, money for new homes, pensions, and education for their children. We get lower wages, economic upheaval, crushing debt and empty pensions. Our kids inherit a spatula and hair net or worse, a crack pipe and handgun.
Posted by: ed   2007-09-12 20:50  

#10  So let me see if I got this straight. We get furniture, electronics and other goods and in return, these other countries get pieces of paper that haven't been backed by gold in 35 years or so.

This reminds me of something my father told me when I was a kid:

"If you owe the bank $5 million, you're fucked. If you owe the bank $500 million, they're fucked."
Posted by: Mike N.   2007-09-12 19:35  

#9  As if European goods aren't expensive enough already. Their export business to the states must be shit these last couple of years.
Posted by: bigjim-ky   2007-09-12 19:22  

#8  There's nothing special about manufacturing.
The economy works by time exchange, not goods exchange.

Complaining about mercantilism, and then insisting on implementing it is not consistent.

Americas problems are solely due to the bubbles caused by overly low interest rates.
Posted by: Bright Pebbles   2007-09-12 18:45  

#7  ...which means American exports are cheaper. Time to export all that excess farm product so the rest of the world can catch up to being chronically overweight. Next French farmers to burn down another couple Micky D's.
Posted by: Procopius2k   2007-09-12 18:40  

#6  Steve, most advanced countries have/had manufacturing surpluses for a very long time. Only in the last few years has Europe begun to have a trade deficit with China and it expanding fast. But at least they still have a huge trade surplus with the US to fall back on for now so the structural hit to their manufacturing and financial base has so far been minimized.

The US is the only advanced economy that runs such a large and long term deficit. This is uncharted territory, but just look around your corner of the country, the midwest and see the huge impact of the loss $20-30/hr manufacturing jobs substituted by $8/hr retail jobs selling imported merchandise. Ain't called the rust belt for nothing. This policy of gutting the most productive sector of the economy manifests itself in an insecure future for workers as more and more sectors of the productive economy are sent overseas (not just manufacturing, but technical, engineering, clerical, financial, and, to hit close to home, even some medical services). This results in insecure futures for our citizens as many workers cannot plan for the future and are forced to move around to find available jobs instead of settling in homes and planting community roots. Worse for the nation's future, an inability to afford university education for children or save any money for retirement on low wage retail jobs.
Posted by: ed   2007-09-12 15:22  

#5  C'mon guys. The budget deficit is at near historical lows for the past 60 years. The trade deficit doesn't measure the various things we do of value that bring money back in other ways.

And I'd point out that most of the West has moved its manufactoring base off-shore. Most Western countries manufactoring accounts for less than 25% of their GDP. Services make up most of the rest. Why? Because that's where the money is, and an educated, free society goes for the money every time.

This isn't a huge deal. We're not Zim-bob-we.
Posted by: Steve White   2007-09-12 14:56  

#4  Trade deficit graph
Posted by: ed   2007-09-12 14:19  

#3  It's the US trade deficit. Last year it was over $760 billion or 7% of GDP. We have squandered the wealth built up by our ancestors over 15 generations in less than one and managed to ship wholesale our industrial base to those who are mostly less than friendly. Until we stop importing trinkets from Chinese communists, oil from muslim barbarians, cars and electronics from German and Asian mercantilists and produce the goods or substitutes with our own labor, then economic situation will keep on deteriorating and our children will be working at Walmart until they are 40.

No other country on earth allows others such access to their domestic market. Stop being such patsies to foreign opportunists and domestic moneymen.
Posted by: ed   2007-09-12 14:07  

#2  The dollar is subject to supply and demand just like anything else.

We've had an expensive war, without special war taxes. To pay for it, we go into debt, creating more dollars/dollar denominated debt vehicles.

China's growth has been absorbing liquidity, leaving the Dollar in pretty good shape. But now dollars are so plentiful they are "cheap" and anyone holding dollars has some risk.

We have several resolutions:
1) Fed forces rates high, reducing access to capital
2) Fed protects economy by lowering rates (creating inflation)
3) Gov't withdraws from afganistan/iraq, reduces deficit spending (economicaly good, probably militarily suicidal)

No predictions from me though.
Posted by: flash91   2007-09-12 13:44  

#1  When is the freaking dollar going to stop falling? Enough already! The world's going to switch to euros if this keeps up.
Posted by: gromky   2007-09-12 13:11  

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