https://www.marketwatch.com/market-data/currencies
This is a big deal as it will cause the reporting of foreign sales/profits to be lower in terms of USD values. If the USD index continues to rise, expect dismal stock market returns.
It does mean, however, that foreign good should be available in the US at lower cost which will be a negative for inflation to the extent these goods are purchased.
Jeff
Jeff,
In the crazy world of econ all of that you said is backwards.
Commodity prices in dollars will fall. Right now we are seeing the EU Russia boycott premium. It wont last.
With more manufacturing in the US we will see economies of scale that are deflationary forces.
As workers make more money the economies of scale will intensify.
With a long term stronger dollar we will see greater exporting from the US to the globe. Unlike what the simplistic but wrong approach of supply side econ failed at for the last 42 years.
Please explain how a stronger dollar relative to other currencies makes U.S. goods more appealing to the rest of the world. It sounds like you are saying that the rest of the world wants to pay more for our goods,increasing exports from the U.S… More Euros for less goods are the result of a stronger dollar,not the other way around.
JK
JK,
As the USD appreciates commodities become relatively less expensive to US manufacturers.
As manufacturing in the US and Mexico/Canada expands the different producers are intertwined. There is a synergy that will develop manufacture in North America.
The result is economies of scale.
As workers make more money the factories get paid for quicker. Again resulting in economies.
The economies are deflationary forces.
There is a valid argument that most manufactured goods would run to zero cost except for the FED printing money/treasury. Meaning that manufacturing by its nature is deflationary.
All of this is inside out by the simplistic notions of supply side econ.
Leap, By your explanation we should just build everything here, and importing goods is insane, because if “economies of scale” are large enough nothing costs anything?
In theory?
JK
Jim,
It is not just a theory.
If you produce a paper cup in your factory as you make more and more cups they get less expensive to make. As the paper producers get to know your material needs those come down with your buying power. As you refine your manufacturing technique the costs come down even further.
Manufacturing is a major deflationary force.
The central banks use that to expand the monetary supply and therefor economic growth. As the economy grows a richer public buys more paper cups and your costs per cup decline over and over again.
The printing of money though ads some inflation. The FED target is 2% to keep up the cost of manufactured goods. Or your cup would sell for less and less every year.
Raw materials,labor and machinery all cost money.I am well aware of economies of scale. The cost of capital to build factories,etc. Will never allow physical goods to have zero incremental costs. A strong currency is a hindrance to exports ,not a benefit.
Software is as close as you can get to something which can have an extremely minimal incremental cost. Physical products have a well defined lower limit to cost.
A weaker currency relative to your trading partner confers you the advantage in exports,not the opposite.
Jk
With a long term stronger dollar we will see greater exporting from the US to the globe - Leap
I tend to travel a great deal and frequently use foreign currencies (currently Euros). Let’s take a current example:
The ship I am sailing on offers excursions priced in USD. Many passengers have pre-purchased them. The ship pays for them in terms of local currencies (on a current basis) which has presumably rewarded them with a windfall profit. So the cruise line (NCLH is not exactly American, but let’s simplify things and say they are) gains on a “victimless crime” - right?
Not exactly. We go out and, having purchased Euros at the “bank rate” with our ATM/Debit card buy that same tour at a lower price in equivalent USD than the rest of the passengers - something they could have taken advantage of as well. (Actually, there is a high probability that we paid less than a half what the others paid, but that’s a tale for another venue).
So foreign goods (the tour) become less expensive (favoring more imports to the US)
Now, let’s consider an Australian aboard who has to buy US dollars with his/her native currency. That excursion being sold by the US cruise line has just become more expensive to the Ozian and it is less likely that it will be purchased (an analog to reducing purchases of US exports).
You can rationalize synergies and repeat propaganda all you like, but the relationships of comparative valuations which form the underlying infrastructure of macroeconomics are what they are.
Jeff
A weaker currency relative to your trading partner confers you the advantage in exports,not the opposite.
Jk
In fact just the opposite. We had a very strong dollar in the 1946 to 1970 period. While the lame excuse is the Europeans were in ruins by 1960 that was not true at all. It was just stuff for patriotism not reality. It was not true for the Japanese as well.
We had far higher GDP growth rates from 1946 to 1980 because of government policies. We have had far slower GDP growth rates from 1981 to 2020 because of totally failed government policies. Our deficits are through the roof as a result. We have a massive trade deficit as a result of a weaker dollar in relative terms.
The argument of a weak dollar is way over simplistic and does not work.
While costs do not hit zero in manufacturing they would directly run towards zero. The FED/Treasury printing money is necessary to keep prices stable. If that prints was not happening there would be dramatic deflation in manufacturing societies. Harping on the does not hit zero exactly is besides the point. Lets get over that.
NOTE while nominally the RMB is not the same number in exchange to the USD it is pegged as the same thing. In other words in the trading band the results should be very close. The results are different because of government policies that encouraged higher and higher pay for workers. This induces economies of scale in China.
You can rationalize synergies and repeat propaganda all you like, but the relationships of comparative valuations which form the underlying infrastructure of macroeconomics are what they are.
Jeff,
The conversation is about manufacturing power and synergies. You are not discussing manufacturing realities.
But if we look at OTC whether here in the US or in a third world nation, if we produce it here with economies of scale it is less expensive in relative terms to us here at home. If we produce more goods across the board less expensive yet and soon the trinket in a the third world becomes even cheaper in USD, but the the world nation racks up debt buying US goods those countries are not producing.
It working for the Chinese for decades now even as their RMB has the same floating value or relative value as the dollar. The RMB is the same as the USD not appreciating or depreciating against the USD. Please do not quivel over the actual rate it is a moot point. There is no mystery there. There is just the American super wealthy screwing up our economy. If you take it only that billionaires are doing well you might note the country is left in total disrepair and worse disregard.
Worse we had not been investing on expending the manufacturing base until more recently.
If you or Jim think a weak dollar will cut imports and increase exports, again, it has not worked for the last 40 years. Why would it suddenly work now? Small relative depreciations in the USD never worked either.
Commodity costs go down over time with an appreciating dollar. Right now we have the EU Russian boycott of fuels and Ukraine food supplies cut as the inflation premiums. Those premiums we begin to disappear very soon.
The USD being strong long term matters all the way around. It is not propaganda at all. But it does mean hiking interest rates and then normalizing them. It does mean raising taxes on the wealthy slowly over the next 40 years.
DXY is currently at 104.5, the highest since late 2002.
DB2