dlo@drutx.UUCP (OlsonDL) (10/25/85)
[] There has been a lot of political posturing the last few years or so concerning the so called "over valued" American dollar. Supposedly this is causing problems with trade. I realize that the steel, auto, textile and other industries are hurting. However, to say that the dollar has to be devalued to fix these problems is a specious argument. In the first place, making some foreign item more expensive doesn't necessarily mean that domestic items will take their place in the market. First of all, if people do not have the money for them now, the purchase will either be put off until later, or maybe not at all. Secondly, making foreign goods more expensive does not mean that prices of domestic items will be unaffected. After all, the dollar that purchases a Toyota is no different than the dollar that purchases a Chevrolet. If the dollar is devalued, it will make the Toyota proportionally more expensive, but it will also make the Chevy *and everything else* that the dollar purchases proportionally more expensive. Therefore, a devalued dollar means that everybody who uses that dollar, loses (Maybe with the exception of politicians and bureaucrats. Since more expensive items and higher tax brackets mean higher tax revenues, and politicians have better hopes of getting reelected if they are "perceived" as trying to protect us, while things around us seem to fall apart.). The only value the dollar has is its spendability. i.e. the only reason people accept the dollar is the belief that they will be able to exchange it for something that they really want or need. Which, in turn, means that it will be passed onto somebody else, who has to pass it onto somebody else, and on, and on ... Which means that at some point, that dollar has to come back to us. There is term for a nation has *more* money coming in than it has going out; it is called a debtor nation. Which brings up an interesting question: Can a debtor nation have a trade deficit? After all, you cannot have more money coming in than going out at the same time that more money is going out than coming in. Conclusion: A trade deficit can exist in localized areas or industries. However, the only way we can have an *overall* trade deficit is if those who receive the dollar make it no longer spendable, say by burning it for fuel (very expensive) or stashing it away never to be seen again. Who in their right mind would trade their shiny brand new automobiles, stereos, cameras, VCRs etc. for little green pieces of paper that they would *never* exchange for something else? As I see it, industries that are pointing the finger at foreign trade for the cause of their troubles are pointing in the wrong direction. These opinions are my own, and do not necessarily reflect those of my employer. David Olson ..!ihnp4!drutx!dlo
franka@mmintl.UUCP (Frank Adams) (10/30/85)
In article <368@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes: >There has been a lot of political posturing the last few years or so >concerning the so called "over valued" American dollar. Supposedly >this is causing problems with trade. I realize that the steel, auto, >textile and other industries are hurting. However, to say that the >dollar has to be devalued to fix these problems is a specious argument. > >In the first place, making some foreign item more expensive doesn't >necessarily mean that domestic items will take their place in the market. >First of all, if people do not have the money for them now, the purchase >will either be put off until later, or maybe not at all. Secondly, making >foreign goods more expensive does not mean that prices of domestic items >will be unaffected. After all, the dollar that purchases a Toyota is no >different than the dollar that purchases a Chevrolet. If the dollar is >devalued, it will make the Toyota proportionally more expensive, but it >will also make the Chevy *and everything else* that the dollar purchases >proportionally more expensive. Therefore, a devalued dollar means that >everybody who uses that dollar, loses. No. The reason people say the dollar is overvalued is precisely because the ratio of the prices of goods in the U.S. and in other countries does not match the exchange rates. Devaluing the dollar means changing the exchange rates, not changing its value against everything. Now the Chevy is likely to get more expensive after a devaluation, but by less than the Toyota. There are two reasons for this. One is that some of the parts in the Chevy are imported, thus GM's costs will be higher. The other is that with importers being less competitive on price, GM can increase its price and still sell its cars. This latter effect is likely to small in this case, since the importers now have very large profit margins, so will likely accept lower profits instead of raising their prices. Frank Adams ihpn4!philabs!pwa-b!mmintl!franka Multimate International 52 Oakland Ave North E. Hartford, CT 06108
dlo@drutx.UUCP (OlsonDL) (11/04/85)
[] From: franka@mmintl.UUCP (Frank Adams) >In article <368@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes: >>There has been a lot of political posturing the last few years or so >>concerning the so called "over valued" American dollar. Supposedly >>this is causing problems with trade. I realize that the steel, auto, >>textile and other industries are hurting. However, to say that the >>dollar has to be devalued to fix these problems is a specious argument. ...... >>will be unaffected. After all, the dollar that purchases a Toyota is no >>different than the dollar that purchases a Chevrolet. If the dollar is >>devalued, it will make the Toyota proportionally more expensive, but it >>will also make the Chevy *and everything else* that the dollar purchases >>proportionally more expensive. Therefore, a devalued dollar means that >>everybody who uses that dollar, loses. >No. The reason people say the dollar is overvalued is precisely because >the ratio of the prices of goods in the U.S. and in other countries does >not match the exchange rates. Devaluing the dollar means changing the >exchange rates, not changing its value against everything. > >Now the Chevy is likely to get more expensive after a devaluation, but by >less than the Toyota. There are two reasons for this. One is that some of >the parts in the Chevy are imported, thus GM's costs will be higher. The >other is that with importers being less competitive on price, GM can increase >its price and still sell its cars. This latter effect is likely to small in >this case, since the importers now have very large profit margins, so will >likely accept lower profits instead of raising their prices. Not true. Let's apply this to a different set of measurements. Length. Suppose it was decided that the inch relative to the other length measurements was overvalued. A decree is made that henceforth the inch will be devalued to 15 inches to the foot. That means that the rate will then also be 45 to a yard, 79200 to a mile, 0.4921 to a cm, etc. It does not matter what standard you use; the fact remains that it now requires *more* inches to cover *the same amount* of length than it did before. If you want to make more inches against some other length measurement without devaluing the inch against itself, it is the *other* measurements that must be adjusted. i.e. now to make 15 inches to a foot, the foot will have be increased by 1.25 times. And the yard, the meter, the micron, the light year, etc. The inch will then still cover the same length as it did before. The same is true for the dollar. If the dollar is not the desired value against, say, the Yen, but it is desired that Japanese goods be made more expensive without making domestic goods more expensive, it is the Yen that must be increased in value. >Frank Adams ihpn4!philabs!pwa-b!mmintl!franka My opinions are my own, and do not necessarily reflect those of my employer. David Olson ..!ihnp4!drutx!dlo
jonab@sdcrdcf.UUCP (Jonathan Biggar) (11/07/85)
In article <445@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes: >Not true. Let's apply this to a different set of measurements. Length. >Suppose it was decided that the inch relative to the other length >measurements was overvalued. A decree is made that henceforth the inch >will be devalued to 15 inches to the foot. That means that the rate >will then also be 45 to a yard, 79200 to a mile, 0.4921 to a cm, etc. > >The same is true for the dollar. If the dollar is not the desired value >against, say, the Yen, but it is desired that Japanese goods be made >more expensive without making domestic goods more expensive, it is the >Yen that must be increased in value. There is a big difference here. An inch is an inch all around the world whether you chose to call it that or not. If you decide to change the length of an inch, you have not in any way changed the actual distance between two points. The length denoted by the inch has a basis in reality and fact. A dollar is not based on any real standard. Nowhere does it say that a dollar can be redeemed for X amount of gold or anything else. The dollars value is entirely based on the faith that people put in it (the likelyhood that it will retain its value.) Thus, the dollar can change simply by a consensus that it be so. If everyone in America chooses to keep exchanging dollars for goods at the same rate here, but changes the exchange rate between dollars and yen, then local prices do not vary directly, but imported goods become more or less expensive. Jon Biggar {allegra,burdvax,cbosgd,hplabs,ihnp4,sdccsu3}!sdcrdcf!jonab
dlo@drutx.UUCP (OlsonDL) (11/12/85)
[] In article <2446@sdcrdcf.UUCP> jonab@sdcrdcf.UUCP (Jonathan Biggar) writes: >In article <445@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes: >>The same is true for the dollar. If the dollar is not the desired value >>against, say, the Yen, but it is desired that Japanese goods be made >>more expensive without making domestic goods more expensive, it is the >>Yen that must be increased in value. >There is a big difference here. An inch is an inch all around the world >whether you chose to call it that or not. If you decide to change the length >of an inch, you have not in any way changed the actual distance between >two points. The length denoted by the inch has a basis in reality and fact. My point exactly! The dollar is the same dollar all around the world wherever it is spent, and reguardless of what it purchases. If it is devalued, *no matter what it purchases* will require more of them than what it did before. >A dollar is not based on any real standard. Nowhere does it say that a dollar >can be redeemed for X amount of gold or anything else. The dollars value is >entirely based on the faith that people put in it (the likelyhood that it will >retain its value.) Thus, the dollar can change simply by a consensus that it >be so. The value of the inch is also by consensus. You said so yourself when you said that it is the same around the world. I believe the basis for the inch was something line 500,000,000 to the pole-to-pole length of the earth. So what? There is nothing said that it cannot be changed to 750,000,000 or any other value. And, there is nothing to keep people from using any other standard or no standard at all. The inch currently measures about |<------>| (at least on my terminal :-)); there is nothing that says it cannot measure |<->| or |<---------------------------->|; nothing EXCEPT consensus. And no matter what it measures (whether with or without a standard), if it is worth less now than what it was before, it now requires more of them to cover the same length than it did before. >If everyone in America chooses to keep exchanging dollars for goods >at the same rate here, but changes the exchange rate between dollars and yen, >then local prices do not vary directly, but imported goods become more or less >expensive. This would be true only if the value of the yen was increased and the value of the dollar remained the same. The dollar's value can be controlled here, but you cannot make its value in the US *different* than its value in some other country. If its value is made higher here, it is made higher everywhere else also. Lower elsewhere, means lower here too. The dollar's value against the yen in the US is the same as the dollar's value against the yen in Japan. It is the same dollar. The dollar that purchases foreign goods is no different than the dollar that purchases domestic goods. A devalued dollar makes *both* proportionally more expensive. Look at it this way. Suppose someone from the US traveled to Japan with some US dollars. Why should those dollars decrease in value merely because he crossed the US border? It would be like if he brought a ruler with him and all of a sudden it shrunk! >Jon Biggar My opinions are my own, and do not necessarily reflect those of my employer. David Olson ..!ihnp4!drutx!dlo
jonab@sdcrdcf.UUCP (Jonathan Biggar) (11/13/85)
In article <533@drutx.UUCP> dlo@drutx.UUCP (David Olsen) writes: >The dollar's value can be controlled here, but you cannot make its value >in the US *different* than its value in some other country. If its value >is made higher here, it is made higher everywhere else also. Lower >elsewhere, means lower here too. The dollar's value against the yen in >the US is the same as the dollar's value against the yen in Japan. It >is the same dollar. The dollar that purchases foreign goods is no >different than the dollar that purchases domestic goods. A devalued >dollar makes *both* proportionally more expensive. Consider the situation in Mexico. The dollar will trade for (lets say) 300 pesos at a bank in the US. But a bank in Mexico will give maybe 320 and a shop owner in Tijuana will give 400. All of this at the same instant on the same day. The value of the dollar is relative based on the particular individuals in a transaction. The amount of distance we currently call an inch will not change if we change our definition of inch. A piece of paper 8.5 x 11 inches will not change in REAL size if we change the definition of the inch. A dollar does not work that way. If the exchange rate between the dollar and the yen is changed, and all Americans stand by the new rate, then Japanese can only choose between using the new rate or taking their business elsewhere. The value of the dollar changes just because someone (or a groups of people) says so. Jon Biggar {allegra,burdvax,cbosgd,hplabs,ihnp4,sdccsu3}!sdcrdcf!jonab
franka@mmintl.UUCP (Frank Adams) (11/15/85)
In article <445@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes: >From: franka@mmintl.UUCP (Frank Adams) >>In article <368@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes: >>No. The reason people say the dollar is overvalued is precisely because >>the ratio of the prices of goods in the U.S. and in other countries does >>not match the exchange rates. Devaluing the dollar means changing the >>exchange rates, not changing its value against everything. > >Not true. Let's apply this to a different set of measurements. Length. >[Long analogy deleted] Devaluing the dollar *means* changing it's exchange rate *against other currencies*. It does not mean changing it's value against other goods. As long as we are only looking at dollars and yen, it is exactly as accurate to talk about decreasing the value of the dollar and increasing the value of the yen. When you note that you also have to increase the value of the pound, the franc, the mark, ..., relative to the dollar, it becomes much easier to simply talk of devaluing the dollar. As for being overvalued -- this is where your analogy with length breaks down. The cost of a Toyota in Japan, in yen, times the exchange rate between dollars and yen, does not equal the cost of the Toyota in the U.S. (Even after you take shipping costs and tariffs into account.) This sort of thing can't happen with lengths; it can with monetary value, because there are barriers to trade. Frank Adams ihpn4!philabs!pwa-b!mmintl!franka Multimate International 52 Oakland Ave North E. Hartford, CT 06108