ins_aprm@jhunix.UUCP (Paul R Markowitz) (11/07/85)
At the risk of generating a long debate on yet another worthless topic, I
wish to make a few points about the current strength of the dollar and
what needs to be done about it.
Recently, the dollar has been overvalued on the foreign exchange market
to the point that all those economists who normally say, "don't worry, the
market will take care of it", are now saying there is a problem. The
problem is this: the dollar is strong that American corporations are having
problems competing on foreign markets while foreign corporations are having
an easy time under-selling American companies here in the US. This has
caused a major US trade deficit. The other side of the problem is the large
capital outflow that the US is experiencing. What this means is that American
dollars are leaving the country to pay for the massive imports. This is
further compounded by the fact that foreign companies are taking the money they
earn and are investing it in the US where they can get a better rate of return.
This is leading to an endless spiral where the value of the dollar increases
without bound. The method used thus far to stop this effect has been to
increase the money supply. This treats the symptoms but not the problem.
The cause: In 1981, the Reagan administration instituted a series of tax
reforms designed to aid the weakening economy. Among these was a revision
of the tax code to allow accelerated tax writeoffs for depreciation. This was
called the accelerated depreciation allowance. This allowance made it
profitable to invest in the US rather than other countries. It also made
investment become preferable to savings for US residents. The initial
result was the one that the administration wanted: the economy grew and the
recession ended. Unfortunatly, the administration didn't change the tax code
after the country started doing well again. Eventually, the dollar apreciated
significantly as a result of increased real interest rates due to the
profitability of US investments. The result is the current situation.
Recently, the gang of five (the US, Japan, Great Britain, Germany, and
France) took action through central banks in an attempt to reduce the value
of the dollar. This is only of temporary value if it is of any at all.
The current economic situation was not changed and as soon as the market
figures this out, the situation will be as it was before. What needs to be
done is the accelerated depreciation allowance needs to be revoked in an
attempt to make investment in the US less attractive. This will reduce the
upward pressure on the dollar and solve at least part of the problem.
The domestic economy may suffer a little for it but probably no more than it
already is suffering from huge increases in the money supply that are necessary
to pay interest to foreign investors.
------------------------------------------------------------------------
Paul Markowitz
"$15,000 per year should earn me the right to express my opinion without
fear of the university."
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arpanet: ins_aprm%jhunix@hopkins.ARPAdlo@drutx.UUCP (OlsonDL) (11/14/85)
[] In article <1120@jhunix.UUCP> ins_aprm@jhunix.UUCP (Paul R Markowitz) writes: >This is >further compounded by the fact that foreign companies are taking the money they >earn and are investing it in the US where they can get a better rate of return. I sincerely hope so! Do you really want that much needed investment taken away? Investment into the US economy means nice things like more jobs. Indeed, unemployment is still high, but it would be even worse without the investment. >Eventually, the dollar apreciated >significantly as a result of increased real interest rates due to the >profitability of US investments. The result is the current situation. But, that is circular logic. There is more to the value of the dollar than just getting more of them. And, I knew somebody would bring up "real interest rates" (I assume you mean subtracting inflation from the prime lending rate). Even if such a concept was valid, it does not account for the dollar's value. i.e. the differences between those percentages are about the same now as they were 5 years ago. >What needs to be >done is the accelerated depreciation allowance needs to be revoked in an >attempt to make investment in the US less attractive. Take away the life blood of the economy away! You have got to be kidding! Where do you think money for things like facilities and tools come from? Do you think that this money just falls from the sky? Besides, the more money invested by foreign countries, the less likely those countries will try to undermine the US economy, since that is where their money is. They would be cutting their own throats! >This will reduce the >upward pressure on the dollar and solve at least part of the problem. >The domestic economy may suffer a little for it but probably no more than it >already is suffering from huge increases in the money supply that are necessary >to pay interest to foreign investors. A few years ago, it was thought to be a bad thing that the US loaned so much money to foreign countries. Remember the concept of the "debt bomb"? Bad to loan money to others; bad for them to loan money to us. Interesting. Besides, after WWII, the US loaned massive amounts of money to Japan and Germany for rebuilding. They became huge debtor nations and have apparently done quite well thank you. Besides, even if what you said is true, how does that prove that devaluing the dollar will NOT make prices for the already expensive domestic goods even more expensive? >Paul Markowitz My opinions are my own, and do not necessarily reflect those of my employer. David Olson ..!ihnp4!drutx!dlo