Dollar Competitiveness – Part II

cropped-bob-shapiro.jpg   By Bob Shapiro

We saw yesterday that, although the Dollar has been strong versus the currencies of our trading partners, over the long haul – 60 years – Americans have been savaged by our government’s policies which have caused this fall in the Dollar’s international purchasing power. This fall is on top of the rise in prices domestically – the CPI increases.

Today we look at who wins and who loses by a cheapening Dollar and by the policies which cause it.

Many industries compete in the world marketplace. The US exports

  • Capital Goods (eg Machine Tools) 28%
  • Industrial Supplies & Materials 25%
  • Consumer Goods (eg Vehicles & Shampoo) 21%
  • Food, Feed, & Beverages 9%

In each of these industries, US companies compete with local companies throughout the world. A weaker Dollar allows US companies to price their wares lower, making them more competitive on price.

The rest of the world exports to us as well – US Imports. A weaker Dollar – a stronger foreign currency – lets domestic US companies price what they sell lower and be more competitive on price. Computers and vehicles & parts frequently come from other countries.

Boat with Containers

Even some services compete in the world marketplace. For example, customer service phone centers for the US actually may be located in Asia or other low labor cost locations.

Companies and employees competing in world markets benefit from a weak Dollar, at least in the short run. Short run? Yes, the weak Dollar policies of low interest rates and paper money printing cause CPI price increases, so domestic costs rise, closing the competitive gap.

Union leadership depends on getting large raises for union members. Though members may make little or no headway after inflation, a nominal dollar raise allow unions to stay in business. (A worker facing 0% CPI rises – or actual CPI decreases – would have little or no need for a union.)

Politicians benefit from a weak Dollar, since they can trumpet how they helped make companies and their workers more competitive. In reality, the stable costs that a halt in the policies would allow, would improve competitiveness as foreigners had to overcome their own governments’ inflationary and regulatory policies.

Losers in the US of these bad policies include the weakest of Americans. The poor fighting inflation, the old on fixed incomes, the young trying to land that first job on the career ladder, are the ones who suffer most. To the extent that rising prices and slow GDP growth affect every American, even those who benefit in the short run, will be losers long term.

Winners & Losers

Most of our politicians don’t care since, as Keynes said, “In the long run, we’re all dead.” But, Keynes was wrong on so many things, including here. The long run is the collection of the short run gains or losses.

We need to end the current policies which give short term gains to select groups. By encouraging a growing Economy and stable to falling prices, the Dollar can rise continuously against the rest of the world’s currencies, and we still will be competitive. A growing Economy and stable prices help all Americans. That’s the best way to restore Dollar Competitiveness.

Action Item: Stop the destructive policies which weaken the Dollar and cause the US Economy to slow down.

  • Abolish the FED to
    • Let Interest Rates return to Free Market levels
    • Stop Debasing the US Dollar and create a stable price environment
  • Get rid of all the Regulations which are slowing down US Economic Growth
  • Eliminate the Budget Deficits which are draining the private, productive sector of the US Economy of the capital needed to allow Economic Growth

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