I travel a lot so this becoming quite a problem. My money doesn't go quite as far as it used to and at the same time there are no raises nor bonuses. washingtonpost.com Fiddling While the Dollar Drops By David Ignatius Friday, December 5, 2003 Something ominous is happening when the United States reports its biggest surge in productivity in 20 years, as it did Wednesday, and yet the dollar plunges to an all-time low against the euro. The dollar is sinking these days on good news and bad, and the explanation is pretty simple: Investors around the world are worried that the Bush administration's policies are eroding the value of the U.S. currency. So they're rushing to unload greenbacks, in what could soon become a full-blown financial crisis. "The dollar crisis is the story," warns James Harmon, an investment banker who headed the Export-Import Bank during the Clinton administration. "A lot of smart money has moved out of the dollar in the last six months," he explains. "Now the latecomers are rushing to sell, and that's adding to the momentum." The "smart money" includes financial guru Warren Buffett. He disclosed last month in Fortune that since the spring of 2002, he has been making "significant investments" in foreign currencies for the first time in his career. What worries Buffett is that the U.S. trade deficit has "greatly worsened," and is now running at more than 4 percent of GDP. That puts the U.S. economy at the mercy of foreigners, and their willingness to hold surplus dollars. So long as global investors believed that U.S. authorities were ready to protect the dollar as a reserve currency, they kept adding to their stashes of greenbacks, despite the trade deficit. But that confidence may finally be disappearing. The dollar's decline during the Bush presidency has been remarkable. It has tumbled about 44 percent from its October 2000 high of about 83 cents to the euro. Over the past year alone, the decline has been more than 15 percent. Investors who trusted in the dollar as a store of value have been clobbered, so it's not surprising that they want to sell, even at current depressed prices. They fear that worse is coming. "I'm appalled at what's happening to the dollar," says investment banker Felix Rohatyn, a former U.S. ambassador to France. "A basic responsibility of a government is to maintain the value of its currency." Rohatyn argues that the Federal Reserve should signal that it "will not allow a dollar crisis to happen" by raising the Fed funds rate at which banks can borrow money overnight, from its current low level of 1 percent. Fed Chairman Alan Greenspan insisted recently that there isn't any dollar crisis, which only made some investors more nervous. If you haven't already gagged on your raisin bran, consider this nightmare scenario -- outlined by an investment banker who for many years headed his firm's currency-trading operations. This veteran trader contends that the markets have entered a cycle in which "overshooting" -- meaning a further sharp fall in the dollar's value -- "is a distinct possibility." The core problem, he argues, is that China and Japan have been determined to keep their currencies cheap -- China by fixing the yuan at an artificially low level and Japan by intervening in exchange markets to keep the yen from rising. With their undervalued currencies, the Asians can export massively to the United States and accumulate ever-larger surpluses of dollars. Hence the nightmare scenario: Between them, China and Japan now hold more than $1 trillion in U.S. Treasury bonds, the trader estimates. But with the declining dollar, the Asian giants have suffered severe losses on these portfolios. If they decided to hedge just 20 percent of their dollar exposure, they could drive the dollar down from this week's low of about $1.21 against the euro to $1.35, contends the trader, and other sellers would trigger a further weakening to $1.45 or so. Facing that sort of decline, the Fed would have to boost interest rates to protect the currency. And higher rates, in turn, would drive down the U.S. stock market. The Bush administration seems comfortable with a cheaper dollar because it's a way of stimulating demand for American products abroad and sustaining the U.S. economic recovery. In other words, it's good politics. But paradoxically, the U.S. recovery will only worsen pressure on the dollar by sucking in more imports. To prevent a full-blown crisis, the administration must take prompt action. It should pledge to cut the deficit; it should stop playing politics with free trade; and it should signal that it will intervene in currency markets when necessary to protect the dollar's value. Those steps might convince global investors that somebody at the White House is at least minding the store. © 2003 The Washington Post Company
I've noticed during the course of this year that the Dollar has steadily dropped. Any of our resident financial "gurus" want to chime in and tell us what is up, politics aside please.
Great... more hardships for our troops and probably more Euro-Trash tourists on the horizon. __________ U.S. troops hit hard by declining dollar By Scott Schonauer, Stars and Stripes European edition, Sunday, December 7, 2003 If you’re an American living in Europe, this is not exactly the best of times to buy pizza in Italy, shop for porcelain in Spain or swig a Pilsen beer in Germany. The good old days — way back last year when a buck would buy more than a euro — are gone. And if some expert predictions come true, the exchange rate will not get better any time. Lorenzo Codogno, a senior economist for Bank of America in London, expects the dollar to get weaker in the next quarter. He said it could fall to $1.25 against the euro, adding that it might be more than 12 months until one dollar equals one euro. “I think the trend is well established,” he said. “The next quarter or possibly the second quarter we’re going to continue to see a weak dollar or even weaker.” That is not good news for people who shop beyond the base perimeter. The dollar hit new lows against the euro last week, and the poor rate couldn’t happen at a worst time — the holidays. The dollar hit a record low against the euro for the sixth straight day on Friday on weaker than expected U.S. job data. The exchange rate was at $1.2087 against the euro on Friday, according to the European Central Bank. The rising euro and the falling dollar has U.S. servicemembers stationed in Europe paying more for just about everything off base, from drinks at the bar to souvenirs at tourist hot spots. It is changing the way many military personnel and their families are spending their money this holiday season. Some are shopping less in town, keeping traveling to a minimum and buying more at the base commissaries and exchanges. “You just can’t shop off post anymore,” said Spc. Emmanuel Gomez, who is assigned to the Bamberg, Germany-based Battery C, 1st Battalion, 33rd Field Artillery Regiment. “When I first got here, the currency was still marks. I’d go off post all the time, for everything. “Now, I can find it cheaper at the [post exchange]. If I see something I want and they don’t have it at the [exchange], I just won’t buy it.” Marine Lance Cpl. Josh Cheney, a member of the Rota, Spain-based Marine Corps Security Force Company Europe, said he can’t help but notice the exchange rate getting worse. “It affects us quite a bit,” Cheney said. “We definitely notice it.” Spc. Chris Robinson, Battery A, 1st Battalion, 33rd Field Artillery Regiment in Bamgerg, has skipped shopping out in town. “I never go off post to buy anything, things are just too expensive,” he said. But Americans aren’t the only ones suffering. European business owners who depend on American customers are feeling the pinch. Alfonso Lara is the manager of a gift shop just outside the main gate to Naval Station Rota. The store sells Spanish-made items, from swords to matador figurines. He said business is down 30 percent. “The situation is like crazy,” he said. “The rate is changing so often.” In the spring, when the base served as a stopping point for ships and troops heading to the Middle East in preparation for the war in Iraq, business boomed. Now, air traffic at the naval station airport has slowed and so has the number of American customers passing through the shop. On a Friday afternoon, the store was empty. He said other stores in town also are trying to weather the dipping dollar. “Everyone is like, ‘Please don’t go down,’” Lara said. “You have set prices and you can’t change them that often.” The falling dollar, however, isn’t all doom and gloom for everyone. U.S. military and civilian personnel are getting a nice cost-of-living stipend to make up the higher cost of living overseas. Plus, Americans stationed at European installations are flocking to post exchanges and commissaries. Commissaries have seen a 5.4 percent increase in sales this fiscal year in Europe compared to the last, Christine Frey, financial manager for the Defense Commissary Exchange Agency at Kapaun Air Station in Germany. Commissaries sell some products from Europe, but the grocery stores are mandated to sell them at cost. “For us, it has been an extremely good year,” Frey said. Navy exchanges have seen a slight increase in sales this year, mostly due to the war. However, the weak dollar is not helping. More than half of the Navy Exchange System’s workers in Europe are locals. The Navy exchange stores in Europe have lost $1.5 million in payroll expenses in a nine-month period this year because local-national workers are paid in euros, said Gary Shirley, NEX European district manager in Naples, Italy. Because the prices are fixed worldwide at Navy Exchange stores, Shirley said it is difficult to recoup what is lost. “We just don’t make that much money,” he said. “We’ve basically had to eat it.” So, what’s the reason for the weaker dollar, especially when there are signs that the U.S. economy is making a turn around? Numerous factors can influence the exchange rate, and theories differ on which is more dominant. If you put 10 bankers in a room, you would likely get 10 different opinions, Codogno said. He blames the deficit, trade wars and the threat of another terrorist attack for the lower dollar. He predicts an exchange rate of $1.25 against the euro might be the peak. “Then, there will be some stabilization,” he said. Americans living in Europe can only hope.
Paging Trader_Jorge: We actually need some financial insight here, and more importantly, we need you to spin this until we believe that a devalued currency is good for us. This will help us sleep. Thanks.
Mister Euro Rising... risin' risin, I say whoo yeah hey, mmmmm http://finance.yahoo.com/q/bc?s=EURUSD=X&t=5d
While living in Germany back in 1992-1993, the dollar had similiar weakened status against the mark. I remember walking into restaurants that adjusted their own internal rate to give American dollars more buying power in their shops. NOW... Look at some the key sentences in the above articles... "I now have to shop more on post more." This means "buy more American goods." With a widening deficit, we need some type of balance to close this up. We need less foreign goods sold in the US and more domestic goods sold. If the price for foreign goods are now more expensive in the USA, and our goods are now cheaper not only locally but also in foreign markets also, who does this benefit? I view it as less demand for foreign goods, a higher demand for US goods. Which HOPEFULLY, translated into manufacturies that haven't abandoned the U.S. to reap some nice orders. Which hopefully in turns creates a new labour demand to fill these new orders. And so on and so on, until the the cycle turns, wages become to expensive here, Cost of goods sold increases, then foreign products become more desirable. The only thing some economists fear is that the dollar will stop becoming the medium used to fuel foreign market transactions. This in no way affects our bottom line in anway. There was talk if I remember correctly of the yen becoming the benchmark back in their dominance. Who knows, who cares, it doesn't effects jobs, just bragging rights......
Indeed... Hence the nightmare scenario: Between them, China and Japan now hold more than $1 trillion in U.S. Treasury bonds, the trader estimates. But with the declining dollar, the Asian giants have suffered severe losses on these portfolios. If they decided to hedge just 20 percent of their dollar exposure, they could drive the dollar down from this week's low of about $1.21 against the euro to $1.35, contends the trader, and other sellers would trigger a further weakening to $1.45 or so. Facing that sort of decline, the Fed would have to boost interest rates to protect the currency. And higher rates, in turn, would drive down the U.S. stock market. The Bush administration seems comfortable with a cheaper dollar because it's a way of stimulating demand for American products abroad and sustaining the U.S. economic recovery. In other words, it's good politics. But paradoxically, the U.S. recovery will only worsen pressure on the dollar by sucking in more imports. To prevent a full-blown crisis, the administration must take prompt action. It should pledge to cut the deficit; it should stop playing politics with free trade; and it should signal that it will intervene in currency markets when necessary to protect the dollar's value. Those steps might convince global investors that somebody at the White House is at least minding the store.
The only thing some economists fear is that the dollar will stop becoming the medium used to fuel foreign market transactions. This in no way affects our bottom line in anway. Ummm, that affects the U.S. in a very real way. Lower demand for U.S. currency means lower demand for U.S. investments. That equals higher interest rates, which leads to slower growth and a weaker stock market.
Gentlemen, it should be noted that I will be *extremely* busy over the course of the next month. I regret to inform you that my posting will be reduced as a result. While I appreciate all of your eager pleas for me to respond to you individually, I simply will not have the time to address every request. I hate to treat my fan base in such a manner, but I must prioritize my very valuable time. A weaker dollar is something that I can live with in the short term. It makes US exports more attractive to foreign buyers, thereby increasing demand for US goods. The problems with a weak dollar are that US businesses that do a lot of transactions abroad receive less money when those currencies are exchanged back into US dollars. It is also more costly to invest abroad, thereby diminishing the potential returns on investments. A weak dollar will help to move our current account balance to a more favorable level. Not sure I agree with rimrocker's quote -- As the economy continues to improve, the dollar will increase in value as foreign investors consider the US a more attractive investment. Foreign investors will demand more dollars, thereby increasing the value of the dollar. It should also be noted that the current interest rate environment (very low) somewhat discourages investors from investing in the currency.
what's wrong with the dollar dropping? isn't the problem that the dollar hasn't dropped enough (esp. versus japan and china)? it's the market's natural self-correction mechanism for america's massive trade deficit. the more the dollar drops, the more our deficit will naturally shrink. but if we really want a quick fix for our deficit and restore the strength of the dollar, taking a few hundred billion dollars worth of that iraqi oil might be just the solution we need.
No, the worst case scenerio for those Asian countries would be to dump 200 billion of anything on the open market and expect to get current market returns. Furthermore it's laughable for this article to assume anyone or anything to operate on optimal performance in financial markets. China purposely pegs its currency to the dollar to ensure its goods will be affordable in the US. Like hell they sell, they would be commiting double suicide. Ummm, that affects the U.S. in a very real way. Lower demand for U.S. currency means lower demand for U.S. investments. That equals higher interest rates, which leads to slower growth and a weaker stock market. Absolutely not true. Most important secondary trading does nothing directly to stimulate the economy directly. Direct US investments into plant manufactories, buildings, etc has no relation to whether or not the US dollar is used as a benchmark. And again, lower demand in equities or direct investments leads to LOWER interest rates since investors want to park their money somewhere if it is not in use, thus as you see now when the market cap dropped from some 3-4 trillion , interest rates LOWERED. If only swapping currienties back and fourth would generate jobs. But I agree where the article stated we need to narrow the trade deficit. We need to begin buying goods made from US manufacturies. And if the cost of doing business for a forigner is to expensive to ship here, well he is welcome to set up shop and hire some old old Red White and Blue.
Absolutely not true. Most important secondary trading does nothing directly to stimulate the economy directly. Direct US investments into plant manufactories, buildings, etc has no relation to whether or not the US dollar is used as a benchmark. And again, lower demand in equities or direct investments leads to LOWER interest rates since investors want to park their money somewhere if it is not in use, (1) If foreign individuals, corporations, and governments start dumping dollars, the currency drops. This makes foreign goods sold here more expensive, which leads to inflation because American goods don't get cheaper - thus the net average costs rise. The way to prop up the currency is to raise interest rates, to make dollar-based investments more attractive. (2) Lower demand in capital investment also forces business to pay higher borrowing rates (a separate issue from #1). If you're a business and people aren't willing to loan you money (an investment for them), the way you get your money is to offer a higher interest rate. (3) Higher interest rates then lead to lower market valuations. This is because the relative future value of capital flows drops, and the stock price is tied to expected capital flows. This is all basic economics. There are benefits and drawbacks to both a strong and weak currency. Going too far in either direction is bad.
(1) If foreign individuals, corporations, and governments start dumping dollars, the currency drops. This makes foreign goods sold here more expensive, which leads to inflation because American goods don't get cheaper - thus the net average costs rise. The way to prop up the currency is to raise interest rates, to make dollar-based investments more attractive. You understand your preaching the age old fear mongering classic economics. It's those that preached this very same disciple that KILLED the economy with their incredible egos and inability to change theory's with new changes in the environment such as NAFT and a new global economy. Don't get me on a rant tearing apart their theories, I will just end it with "I disagree totally." (2) Lower demand in capital investment also forces business to pay higher borrowing rates (a separate issue from #1). If you're a business and people aren't willing to loan you money (an investment for them), the way you get your money is to offer a higher interest rate. I have no idea what your arguing here.I think your concluding somehow that the dollar being used as a medium has some effect on its valuation, and that using the dollar as a medium to preform global transaction (which only results in virtually nanoseconds of currencies changing hands and being exchanged) somehow implies this leads to some type of indirect foreign investment. It doesn't. I have no idea why you would think that. At the end of the day, you either were holding the US currency becuase you wanted to or not. Not becuase the dollar was used as a benchmark to preform some global transaction. These transactions happen so quickly, the dollar is simply the common denominator used to convert from say Peso to the Euro. The conversion formula has no effect on a foreign investors looking for a cash cow somewhere. Your either somewhere he wants to drop some investment or your not. (3) Higher interest rates then lead to lower market valuations. This is because the relative future value of capital flows drops, and the stock price is tied to expected capital flows. I wish you would go back and look at a comparison between market returns and interest rate returns over the past 20-30 years. That whole statement is totally opposite than what has happen historically. Okay, this is all I have time for tonight.
Dollar Drops Again Against Euro 2 hours, 8 minutes ago Add Business - Reuters to My Yahoo! By Manuela Badawy NEW YORK (Reuters) - The dollar retested record lows against the euro on Monday after trimming gains made on the initial excitement over the capture of former Iraqi President Saddam Hussein (news - web sites) at the weekend. "The euro picked back up. The Saddam news affected overnight trade but the U.S. trading session has been underweight," said Tim Mazanec, senior foreign exchange strategist at Investors Bank and Trust Company. "The trend of dollar weakness/euro strength is once again picking up and the geopolitical news is having limited effect in U.S. trade," Mazanec said. The euro was slightly softer near $1.2287 against the dollar, off its record high above $1.23 reached on Friday. The Treasury Department (news - web sites) said on Monday foreigners' net purchases of U.S. financial securities rose to $27.65 billion in October from $4.19 billion in September. However, analysts said overall inflows were below what is needed to fund the U.S. current account deficit. Last month's numbers, showing foreigners turned a cold shoulder to U.S. assets in September, sent the dollar reeling. Concerns over the sustainability of the current account gap mean flows in and out of U.S. assets are a key focus of currency traders. So far, a recovering economy has done little to help the United States fund its widening current account deficit. The dollar has lost over 18 cents against the euro this year and nine cents in about five weeks. "The capital flows had a temporary effect but the euro looks like it's coming back and so is the yen. The long-run fundamental story has not changed. The dollar is still in a declining trend and people think this is an opportunity to get into a short-dollar position," said Michael Rosenberg, Managing Director and Global head of foreign exchange research at Deutsche Bank Securities in New York. The dollar stood at 107.79 yen , slightly firmer than in late Friday New York trade, according to Reuters data. The dollar was up 0.18 percent against the Swiss franc at 1.2637 francs . The dollar had gained more than a cent on Monday from last week's record low against the euro, after news of Saturday's capture of Saddam. "Saddam Hussein's capture did not change the dollar bears' perception that the growing U.S. current account deficit, combined with expectations that the Fed would keep rates on hold at very low levels in the first half, would continue to weigh on the dollar," said Margaret Browne, currency strategist at HSBC. Last week the Fed left interest rates unchanged at a 45-year low of 1 percent and signaled they would not raise them any time soon. This compares to rates in the euro zone of 2 percent, 3.75 percent in the UK and 5.25 percent in Australia. The greenback softened further after the New York Fed's Empire State survey of business conditions eased to 37.4 in December, still a strong number but lower than the revised record high of 40.1 seen in November. Japan's top financial diplomat, Zembei Mizoguchi, said on Monday that Saddam's capture would help reduce global security risks and encourage investors to focus on "strong" U.S. economic fundamentals. (Additional reporting by Burton Frierson in London)
The dollar dropping is a very favorable event for the US, in fact our government is encouraging it. Europe are the ones upset about the dollar dropping, because they are the ones who stand the most to lose from a weak dollar. There's a good article in this week's Economist that addresses this. The negative is that if Americans travel abroad you won't have as much buying power, but that is such a minor detail compared to US manufacturer's improved positions it's not even a concern. You people who are trying to couch a weak dollar as bad are misinformed and once again just looking for ways to smear the current administration.
It's the other way around - a weak dollar is good for US exporters and they stand to benfit from their products being relatively cheaper compared to products in foreign denominations.
At least a weakened dollar will increase our chances of landing several military contracts with the former Warsaw Pact countries. The Eurofighter versus our F-16/F-15E will be no contest, because you will get our technology.....cheaper than the inferior stuff from the Euros. It's like a BMW being cheaper than an Hyundai. Likely we will not buy the European EH.101 Merlin helicopter (even though it will be built in the U.S.) because the Sikorsky S-92 will be cheaper to replace the President's helicopters (the shiny green ones that have been around since Nixon and don't have modern defensive systems). S-92 helo by Sikorsky EH.101 Merlin Also this aircraft will likely replace some of the USMC helos that have been around since Vietnam (the CH-46). A weaker dollar will likely lead to a S-92 selection, unless a great deal of the suppliers of assemblies of the EH.101 Merlin are located here. It's a shame because the EH.101 is a much better helicopter. (Euro helicopter technology, especially when it comes to transmissions and rotor blades, is superior to ours, it pains me to say).
[The Treasury Department (news - web sites) said on Monday foreigners' net purchases of U.S. financial securities rose to $27.65 billion in October from $4.19 billion in September. However, analysts said overall inflows were below what is needed to fund the U.S. current account deficit.] This is precisely the problem. China does not have to sell their existing US Treasury holdings in order for our economy to get hit. They just have to stop buying as much as they have in the past because our current account deficit demands a minimum of capital inflows from abroad everyday just to keep us afloat. The number's that I have seen indicate that China has indeed significantly reduced their US Treasury buying in recent months. It is only a matter of time before bond rates rise and then we have a whole set of dominoes sent falling.
