Just when you think the dollar couldn’t suck any more or any worse than it already does, then it starts going down again, kind of like London Bridge, I guess. You stateside people could care less, right? I can’t blame you. Any effect there only shows up in higher prices, especially oil, whose producers are very aware of ‘real’, that is, stable Euro-based, value. Considering that the US has some of the lower free-market prices around anyway, those effects are somewhat mitigated. So what’s the cause of the once-almighty dollar’s slide into oblivion? That’s the $64K question. The simple answer is that people are buying fewer of them. So why are people buying fewer of them? There are many reasons, including lower interest rates, better options elsewhere, and the likelihood that China has bought about as many dollar-denominated securities as it can reasonably justify. Another reason is that the US is spending them like crazy, and borrowing like crazy, the other side of the flow chart. This is largely due to ‘the war’, always a pricey expenditure, hardly the economic justification of war that conspiracy people like to make it out as. Then there are the low-tax policies that are doctrine for the Bush administration in general. Unfortunately low taxes mean high borrowing. The resulting flow makes the dollar weaker and creditors richer, trickle-up economics. Republicans like to pretend they’re rewarding entrepreneurship and fiscal responsibility by keeping taxes and welfare benefits low, but there’s no shortage of welfare for the rich when Bear Stearns is about to go belly up, nor any excess responsibility when predatory lending practices create a mortgage and credit crisis that ends up affecting us all, innocent bystanders included. Fortunately talk is cheap, but knowledge short, and scuttlebutt thicker than Beijing smog when it comes to economics. How are we supposed to figure it out when the ‘experts’ are just making it up as they go along? There is no science of economics, only theory.
I think the main thrust of capitalist theory is that as long as the economy keeps growing, then any wrinkles will get smoothed out with time if not inflation. In other words, it’s a confidence game. As long as everyone keeps the faith, then the economy keeps growing. They may very well be right. I used to be very skeptical of such theory; after all how can an economy keep growing when resources are limited? I tried to imagine our culture spreading through outer space in some sort of metaphorical expanding universe, but no matter how romantic the image in its appeal to me, space travel is probably more of a drain than a boon to the economy. The advent of the Information Age has shown the limitations of my skepticism and earlier lack of vision. In the computer age knowledge truly is power and there are no limits to resources when you’re talking about intellectual property. But without Communism to keep it honest, capitalism no longer is. Europe’s even getting in on the act now, with eight-figure annual CEO disbursements, predatory lending practices, mortgage scandals, the whole schmear. Not surprisingly England is at the lead in this, but others are learning quickly. Ironically Russia, hardly the richest country in Europe, has by far the most billionaires, highlighting the inherent injustices. This makes you wonder what their Communist era was really all about, apparently little more than a police state to reign in the wildest impulses of the rich and corrupt. France and Germany both have conservative business-oriented governments anxious to dismantle suffocating welfare states that took years to build. For their part labor unions are famous for claiming their piece of the pie without ever really considering the possibility that maybe they should share a piece of the investment risk also. The labor/management dichotomy is critical to labor’s dinosaur way of thinking.
So what does all this have to do with the shrinking dollar? Maybe we should be asking why the dollar was so high in the first place. It hasn’t always been in fact. During the last war, yes the famous V-fingered war, the dollar fell as low or lower than this, and inflation rose much faster. This followed the Bretton Woods agreement of 1972 in which exchange rates were allowed to float instead of being fixed rates. This was after previous B-W agreements pegging rates to the dollar as opposed to gold, which some diehards still long for as currency as if its value were transcendent. In reality it only became useful as currency when there was plenty of it and its value well known, like silver before it, beads and shells before that, and tobacco in times of war. So dollars became world currency after WWII, but it wasn’t until the ‘Reagan Revolution’ that the dollar rose to new stellar heights. Whether the US wanted it that way is debatable I guess. Does a queen bee ask for workers to stuff her with royal jelly? It’s a privileged position, but entails loss of freedom for the royal fat-butt, not to mention the nauseating task of laying eggs for the whole world’s use. In the currency metaphor, the royal jelly is consumer goods and the eggs are dollars. To export to the US was to mine for gold. The US is the only country in the world that can’t re-value its currency, at the total mercy of the others, who need dollars to do business. Increasingly that means China, the modern world’s workhorse whose own currency is virtually useless outside its own borders. China has always demanded one-sided trade, payment in currency rather than a two-way flow of trade. This is what provoked the Opium Wars of the 1800’s, since that was the only other currency acceptable to the celestials, however illegal. I guess it made them more celestial. In all fairness opium was routinely given to British children in the early 1800’s to quiet them down. It worked like a charm. Things only came to a head when the balance of trade turned in Britain’s favor.
Now China buys T-bills and other US securities denominated in US dollars. Though much scuttlebutt has been bandied about Internet and conspiracy circles about ‘the loan’ or ‘loans’ ‘propping up’ the US economy which they can ‘call in’ anytime they want, I can’t find any of this anywhere, just one-way trade and large holdings in specie. Call it Chinese-style communism. So what’s the bottom line here at Ground Zero? Well, with China saturated with dollars and the Thai baht stable, you can bet they’re buying plenty of these now, too, strengthening the local currency. That and high oil prices are fueling inflation like I’ve never seen here, at the same time that the economy is flat from governmental neglect. Thus with the dollar weak and the Thai baht strong, a simultaneous double whammy, much of the economic advantages here have faded. Couple that with increasingly restrictive and arbitrary visa policies, and the bloom is off the rose. With the US real estate boom now faded and hotel rates moderating accordingly from their highs of a year or two ago, while prices in Thailand are inflating rapidly, a room in LA doesn’t cost much more than one in Bangkok. Food costs are less here, but so are portions. The buffet lunch in downtown Chiang Rai isn’t much cheaper than a Chinese buffet in Flagstaff, AZ, cities of similar size. Gasoline in Thailand is about four bucks a gallon, the US cheaper, depending on your location. Most traditional Third World countries have gasoline prices higher than the US, so who’s complaining? Everybody, of course. More importantly, who’s doing anything to change it? I notice a lot of new LP gas stations popping up in Thailand. I haven’t noticed them anywhere else.
So Thailand is not so cheap anymore and the US is not so expensive. The US is in fact looking better all the time. US wages are getting a boost for the first time in years and we might very well have a responsible presidency on the horizon. Interest rates are dropping drastically, so it’s a bad time for saving, but a good time for doing business. Housing prices are lower than they have been for several years. Foreclosures are rampant, bad for the original owners, but good for someone looking to pick up a bargain. A cheap dollar makes US products more attractive overseas, possibly moving it to a more favorable balance of trade. Maybe it’s time to give the US another look. Since my wife just got a K-1 visa, I think I will, for a while at least. There are still places there I haven’t been, like Puerto Rico, maybe? Hmmm…..
