The Falling Dollar: 4 Economic Myths
Posted: Sunday, July 24, 2011
by Walter Rhett
Charleston Perlo
The dollar is falling. Daily, C-SPAN callers, commentators, comment writers, columnists point to a falling dollar as evidence of America's decline. But put your fears aside. A lower dollar is good for America.
A cheaper dollar makes American goods cheaper and increases exports. If a Euro is worth 70 cents, Europe zone residents and businesses can buy more US products and services than they will if the Euro raises to 80 cents.
China understands this. For years, the Chinese have deliberately kept their currency exchange rate low and resisted efforts for its rise on world exchanges. Why do the Chinese keep the yuan low? It allows their businesses to flood the world with China products and keep exports high. A lower dollar will increase the costs of imports but will also encourage more domestic consumption. Don't buy into the myth that a lower dollar hurts America. Its one of our best tools to grow jobs and sustain a strong recovery.
Those people who becry the falling dollar shout from emotion without looking at facts or reasons, and without thinking through or an understanding of the math of economic relationships on the world markets. They will never be convinced that lowering the dollar sells more goods.
Greece, just look at Greece: that what happens when you borrow too much—and that's how the US will end up any day. But we're not Greece. Greece's currency and economy is now governed by an authority outside of Greece, the Euro community of which it is a member. The Euro community acts to put measures into place which are good for the whole community, especially its strongest members. Greece is no longer economically independent. 1) It does not have an independent currency. 2) It is forced to abide and follow the decisions of the Euro bankers. Greece is no longer an economic sovereign.
Ireland is the better warning example for the US economy. Ireland turned to austerity and cut back on government spending as its banking crisis spread, and its economy imploded and collapsed. Ireland should be the focus of our warning: it has lessons not yet learned. Greece is the trick answer; don't bubble it in; pass it up.
In hard times, the US needs to cut back. This common sense idea runs smack into a hidden economic paradox: how can you grow by cutting back? If we all buy less food, will the grocery stores hire more clerks? The paradox is that what makes sense for one doesn't make sense for the group. That's the difference between mico-economics (the economics of individual and consumer trends) and macroeconomics (the economics of nations and states). In recessions, the group has to make up for the individual, or the economy implodes, falling into a black hole from which it becomes harder and harder to pull out.
Think: if no sinner goes to church, who will be saved? If nobody buys insurance, how will costs be lowered? If nobody travels, how will the hotel room be rented? In recessions, the burden falls on the government to push spending, not shrink it. (The paradox!) As private demand returns and the economy grows, the government must be disciplined enough to shrink to maintain reserves for the next downturn. But the middle of a downturn is not the time for the government to shrink. Less will not produce “more.”
Lastly, three reasons why bigger tax cuts will not produce jobs:
- Tax cuts for corporations and individuals in the upper income levels (<$250K), release revenue with no direct ties to production or jobs. Today's wealthy are not Henry Fords. Their wealth and its preservation does not depend on margins generated by labor productivity.
- Tax cuts will release revenues whose increase will be churned by financial instruments, not by higher job productivity. The rich churn their wealth across international lines, using loop holes, tax holidays, currency spreads, tax breaks, and developing markets, not job growth.
- Tax cuts have reached the limits of their marginal utility. Constrained by diminishing returns, further cuts have little utility and will have no effect on job growth.
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