Posted by
zapdoodat on Wednesday, March 19, 2008 5:13:33 PM
I took the 'red-eye' back to Boston Wednesday night and gladly read the Wall Street Journal I adroitly scooped up at the terminal before boarding the plane.
In the 'Letters to the Editor' section, a Professor of Finance from Texas responded to an article titled "Dollar's Value Fundamental to Our
Economy."
He writes, "It is the dollar if we wish to look only at symptoms, but it is high taxes and and regulatory costs if we look at causes."
Now I was half asleep, as usual, at the time when I read this but I know the dollar has lost about half its value the past six years or so. Not too long ago it took 75 American pennies to equal the one euro, now it takes about 156 pennies. I rapidly did the math while slurping my diet coke and discomfitting the turbulence of the aerodynamically designed airplane.
On Neil Cavuto's conservative, Republican business show on Fox News, his panel constantly derides Europe as being socialist, having way too high taxes and way too much regulation. If the Euro is getting stronger, and we want the dollar to get stronger then it seems to me that we need to emulate Europe. I think this means higher taxes and more regulations are needed to make the dollar stronger.
Many people think the U.S. government or the Fed can implement some solution to this problem. I don't think so. The problem of the declining dollar is much deeper and a longer term problem that can't easily be fixed. Simply raising interest rates or having a government official signaling that they support a 'strong' dollar just will not fundamentally change anything.
The declining dollar is has three impetus's.
1.) The U.S. government spends more than it collects in taxes, to the tune of $5 trillion the past eight years.
2.) The United States imports more than it exports and has the largest trade deficit in the history of human civilization.
3.) Americans have become accustomed to spending more than they earn, resulting in a negative savings rate.
The dollar will decline until this stops.
The American people and their government could have been proactive to avoid these three items. Unfortunately we haven't. We have been living beyond our means for some time now. Either the U.S. will decide to fix these problems or it will be decided for us.
The pendulum is swinging the other way, it's global markets at work.