Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



Why weaker dollar won't help exports very much
Howard Richman, 5/5/2011

Most economists think that the weaker dollar will revive American exports. The sequence of events they hypothesize is the following: weaker dollar -> higher profits -> investment in new factories -> greater exports. There is no way to get much greater exports without increased investment in new highly-efficient modern factories.

The weaker dollar does indeed lead to higher profits, but the higher profits don't lead to much investment in new factories. That's because investments are based upon long-term considerations, and manufacturers don't see the weak dollar as being a long-term change. They expect that the exchange rate will bounce up again as it has been doing. The chart below, shows how the dollar's price has yo-yo'd up and down versus the euro for the past five years:

DollarInEuros0606to0511.gif

Currently the dollar is testing .67 of a euro, a magic even number where $1 buys $1.50 euro. From April through July 2008, the dollar got as low as .63 of a euro, but then it bounced up again due to the flight to safety during the fall 2008 financial crunch. In December 2009, the dollar reached .67 of a euro, but then bounced up due to huge purchases of dollars by energing market central banks.

It is likely that the dollar will bounce up again once QE2 ends, but maybe not. Emerging market central banks, including China's, are dealing with inflation which is aggravated by dollar purchases. Bernanke's QE2 has chased many private savers out of US Treasury Bonds and into foreign government bonds that pay higher interest rates. Although the central banks of Europe, Canada and Japan could intervene to keep the dollar from crashing, it is not yet clear whether or not they will do so.

Ironically, a dollar crash would actually be good for the long-term health of the American economy. It would result in the building of highly-efficient modern factories in the United States by international corporations. The new exports would balance trade, which currently subtracts about $550 billion per year from the demand for American products. But the short-term result of the dollar crash would be quite painful -- a huge cut in standard of living combined with high interest rates and inflation. Whoever is president when the crash takes place will be toast.

There is a painless way to cause investment in new untra-modern factories, and thus get the U.S. economy growing -- a WTO-legal scaled tariff to balance trade. At the moment, Donald Trump is the only potential presidential candidate who is even considering the painless solution.

Your Name:

Post a Comment:




  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Archive
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015
    Jan 2015
    Dec 2014
    Nov 2014
    Oct 2014
    Sep 2014
    Aug 2014
    Jul 2014
    Jun 2014
    May 2014
    Apr 2014
    Mar 2014
    Feb 2014
    Jan 2014
    Dec 2013
    Nov 2013
    Oct 2013
    Sep 2013
    Aug 2013
    Jul 2013
    Jun 2013
    May 2013
    Apr 2013
    Mar 2013
    Feb 2013
    Jan 2013
    Dec 2012
    Nov 2012
    Oct 2012
    Sep 2012
    Aug 2012
    Jul 2012
    Jun 2012
    May 2012
    Apr 2012
    Mar 2012
    Feb 2012
    Jan 2012
    Dec 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May

    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term

    Economy - Short Term
    Environmental Regulation
    Real Estate Taxation
    Trade
    Miscellaneous

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]