The Falling Dollar--Understanding the Problem

The Author just crossed the Mexican border this morning, and paid $23.11 for a Product he had purchased from the same source a week before for $20.36. The customary Taco plate lunch with two margurittas cost $9.95, instead of the previous $9.45 ( stated to account for any fallacies found in his argument). This does not tell Anyone much.

Formible Economic argument suggests the Dollar must fall, in order to create Jobs. Brad Delong on his Blog today stated:

It is certainly true that foreign central banks and private investors have set
themselves up to lose amazingly large fortunes as the dollar decline that is
part of macroeconomic adjustment proceeds. The U.S., however, does have a large
stake in making sure that the dollar decline is gradually and orderly. The real
side counterpart of "financial adjustment" is that eight million American
workers have to move from working in construction and consumer services to
working in import-competing and export manufactures and services. If this takes
place over five years, few will notice--and those who notice will be pleased as
they will be pulled out of their current jobs into ones that are likely to be
high paying in industries that are already rapidly expanding.

The Author has difficulty with this standard Economic argument. Foreign central banks acquire Dollar stocks and Treasuries as easy means to get real Capital investment, while curtailing their own domestic inflation. Devaluation of the Dollar means inflation in an exterior Currency, without affecting their own domestic Price structures. Loss of Dollar value to them remains only devaluation of their real Capital accumulation, requiring lower Profit ratios combined with reduced Wage payments to their own Labor force. These same Governments will not allow American penetration of medium-Income domestic Households as such would disturb their own Balance of Payments, propel domestic Wage demands, and incite Unemployment. American luxury item and high-tech industries stand at effective full employment, and Dollar devaluation will not solve the current economic adversity--2.7 standing Unemployment claims over a year after entrance into a supposed Recovery.

Kash, at Angry Bear, proposes the actuality of employment compensation not keeping up with Price increases. He states that half the Income gain, adjusted for Inflation, was actually Profits of Business and Investments--sums which are not used for Consumption. His assertion states employment compensation is matching less than half the Price increases. Think of an actual equation at work: Inflation-Employment Compensation=Consumer Debt.

Brad Setser states: "It seems like American households are now saving about a penny of every dollar they earn, and recently even less. Foreigners exporting to the US, in contrast, save roughly 35 cents of every dollar they earn." His basic contention asserts that American labor must produce more, and buy less. He ignores the fact that foreign Consumers are restricted by Government intervention, while American Government and Business entice American Consumers to purchase Imports. The next intervention to save the Dollar should come from the American Government, and should come in the area of restricting Imports.

The only salvation for the Dollar comes from two sources: 1) American Government--Federal, State, and Local--must not spend more than they are willing to raise in taxes; and 2) We must start to penalize American Consumers for buying foreign goods. American labor must again supply American Consumers with their basic Goods basket. American Capital must fund American production for the American market. American labor's devotion to high salaries and benefits must come to an end, just as American Business must be driven away from the artifically high Profits of foreign manufacture to place their production on American soil. No other Solution will resolve the current economic accounts issues. lgl