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