Hello, dj-ga!
You have asked a question concerning several dynamic economies which
elicits a mixed bag of opinions from well-known economists who never
stay centered on one viewpoint for very long! I have tried to provide
you with several perspectives so that you can formulate some ideas. I
have excerpted portions of each article as they relate to the falling
dollar relative to the US, European and Japanese economies, but I
suggest that you read them in full. Many of the articles contain other
bits of information that you might consider interesting or valuable to
your topic.
Obviously, this is a weighty topic that could easily involve days of
research. However, due to your time constraints, I have tried to
pinpoint the most up-to-date articles that paint a picture of the
economic impacts surrounding the falling dollar.
==
A summary of some of the pertinent opinions concerning the economic
effects of the falling US dollar follow:
* The fall of the dollar is expected to infuse vitality into the US
economy, especially in the manufacturing sector. The greater demand
for US products will translate into more jobs being created in the US,
reversing some of the previous loss of jobs to overseas workers.
* US exports are likely to increase since their cheaper prices makes
them more attractive to global buyers.
* The US economy is expected to suffer the least, while countries
which sell products to the US will likely feel the effects of the
lowered US demand for imports.
* US products are expected to be more appealing to US consumers, since
they are cheaper than many imported goods.
* The weakened dollar may help US firms become more price competitive.
* US companies with multinational offices may realize greater profits
as foreign currencies are converted into US dollars.
* Exporting countries that are dependent on the US are likely to be
affected as companies find it harder to sell their goods to the US
under the scenario of a weakening dollar.
* Faltering European companies which are hit by a lessened US demand
for their goods may move their manufacturing and back-office
facilities to cheaper locations, leading to increased unemployment.
* Strained European-US relations may result as the US turns a deaf ear
to European pleas to stem the dollar's fall.
* The declining dollar might discourage US travel abroad, consequently
impacting the overseas tourism industry and the US and foreign airline
industry.
* It is likely that Japan will continue to maintain an interest in
propping up the US dollar and weakening the yen so that it can sustain
a market for its exports to the United States. However, a surge in US
consumer interest in American-made products cannot help but impact the
Japanese export sector.
===
An overview of the falling US dollar:
"Fall of the Dollar," by James A. Paul and Marianna Quenemoen. Global
Policy Forum. August, 2003.
http://www.globalpolicy.org/socecon/crisis/2003/07gpfdollar.htm
"The dollar has been losing value, weakening its status as the world?s
major currency and setting off jitters in the international financial
system. The falling dollar is not just a technical matter for
financial market experts: trillions of dollars in value have shifted
in the course of about eighteen months, reducing the reserves of the
world?s central banks and knocking down the value of all US assets on
the international marketplace. Analysts worry that a serious dollar
selloff could create panic in the markets and lead to a global
financial meltdown. Even if the worst-case is averted, a declining
dollar may weaken the power of the United States, reorganize global
markets and shift strategic power in the international system."
Read entire article.....
===
Some positive effects of the falling dollar for the US economy:
From "Falling dollar prompts action abroad," by Barbara Hagenbaugh.
USA TODAY (January 21, 2004)
http://www.tempestasset.com/pdfs/012004-1usatoday.pdf
"The dollar's fall is considered a positive for the U.S. economy as it
improves the competitiveness of U.S. goods in foreign markets and
helps boost profits at U.S.-based multinational companies."
"When the dollar falls, U.S. goods are cheaper abroad, making
exporting easier. It also makes imports more expensive at home,
increasing the appeal of U.S. goods. A falling dollar also helps boost
profits for U.S. firms doing business abroad because those profits
come in foreign currency, which are then converted to more dollars."
"Officials in other countries are worried that the USA's gain is
increasingly coming at their expense. Euro zone finance officials said
in a statement Monday they were concerned about "excessive exchange
rate moves." "It hurts," says Eddie McDonnell, president of the
American Club of Paris. "When you have so much momentum, people are
afraid the momentum is going to continue."
==
According to a recent article in Business Week, the falling dollar
will put strains on the global economy.
From "The Falling Dollar's World of Hurt," David Fairlamb.
BusinessWeek Online. January 26, 2004.
http://www.businessweek.com/bwdaily/dnflash/jan2004/nf20040126_2720.htm
"Such a large drop -- coming on top of the 35% fall since early 2002
-- would put severe strains on the international financial system and
the global economy. "It would be a disaster," says Hussain M. Sultan,
group chief executive of Emirates National Oil Co. in Dubai."
Impact on Europe in contrast to the US:
"The euro zone would likely bear the brunt of that readjustment.
"Europe could have a tsunami coming its way," warns Moises Naim,
editor of Foreign Policy magazine. The dollar's fall to date is having
a dampening effect on Europe's already weak export-led recovery. A
further decline would make matters much worse. Companies would find it
much harder to sell their goods abroad. They would also lose domestic
market share to cheap foreign imports, which would sap corporate
profits and damage economic growth."
"European companies would probably react by moving more manufacturing
and back-office operations to cheaper locations. "It would mean even
higher unemployment in Europe," says one euro-zone manufacturer."
"An even weaker dollar also would exacerbate strained U.S.-Europe
economic relations. "We'd want Washington to help stem the dollar's
slide, but they probably wouldn't want to do that, given that it helps
U.S. exports," says the manufacturer. "I think cross-Atlantic tensions
would increase dramatically."
....
"The weaker dollar is boosting U.S. exports in an election year. And
so far, at least, it doesn't seem to be fueling inflation or riling
the bond or equity markets."
"U.S. officials generally say Europe should respond to exchange-rate
movements by deregulating its economy. Many European companies want
that to happen and are pressuring their governments to embrace
far-reaching structural reforms. Should that occur, something positive
will have come out of the dollar's fall. But wide-ranging reforms in
Continental Europe seems unlikely. Large sections of its society,
including organized labor, favor protectionism over reform. In any
case, it takes years before structural changes work through the
economy and start having a positive effect.
* "With a further fall in the dollar likely, 2004 could be a very
uncomfortable year for many parts of the global economy -- though not
by the looks of it for the U.S."
(I have excerpted portions relevant to the US and Europe, but read the
entire article if you are interested in the impacts felt in the Middle
East, Russia and China)
==
A falling dollar may help the US manufacturing sector and work to
balance the deficit. The following article also contains a short
summary of the rise and fall of the US dollar in recent years.
From "THE POSITIVE EFFECTS OF A FALLING US DOLLAR," by Jamie
Wakefield. EUROPEAN RIM POLICY AND INVESTMENT COUNCIL (2003)
http://www.erpic.org/perihelion/articles2004/march/dollar.htm
"Between July 1995 to February 2002, the dollar rose in value by 34%.
This rise is attributed mainly to weaknesses in other major markets;
the stagnate Japanese economy, Europe?s high unemployment rate and
slow growth, the Asian financial crisis as well as economic crisis in
Russia, Argentina, Turkey and Brazil. During this period, the US
economy was characterized by rapid growth and low inflation making US
financial markets both appealing and in turn increasing the value of
the dollar.1 The US economy experienced a recession in 2002 and since
this time the dollar has seen a significant decline in value,
especially its value to the euro."
(Read a bit more about the historical fluctuation...)
"US consumers purchasing imported goods and US citizens traveling
abroad are most susceptible to feel the burden of a declining dollar.
Retailers must pay more to import goods and the expense is usually
passed along to consumers. However some industries, such as car
manufactures, where competition is fierce, decide to allow retailers
to absorb the extra cost in hopes of attracting more customers. If
retailers carry the cost burden for a prolonged period, this could
lead to a loss of jobs as well as a decrease in new hires, as
companies will either remain stable in size or decline. As for
travelers using the US dollar, obviously if the dollar has a lower
value, they get less for their money. Fewer travelers will travel
abroad due to the costs. This in turn will hurt an already ailing
airline industry as well as tourism industries, especially throughout
Europe."
"On the upside, a weaker dollar will actually give a boost to the
American economy and benefit industries such as US manufacturing. The
manufacturing industry has suffered a loss in jobs, reduced profits
and decreased investments due to the strong dollar value throughout
the 1990s. The overvalued dollar has resulted in "the loss of about
740,000 manufacturing jobs (about 4% of the total manufacturing jobs),
a decrease of nearly $100 billion in annual profits and a $40 billion
(about 25 % of US manufacturing investment) fall of investment in the
domestic manufacturing sector." (1b) A strong dollar makes imported
goods less expensive than American made goods, therefore encouraging
consumers to purchase imports as well as contributing further to the
trade deficit. The less demand there is for domestic products, the
fewer workers needed for production, resulting in job and profit loss.
"According to estimates, for each 1.0% rise in the real value of the
dollar, the hours of labor employed in manufacturing fall by 0.13% and
the number of workers employed falls by 0.12%." (1c.)
(Read further....
Referenced articles:
"The benefits of a lower dollar," by Robert A. Blecker. Economic
Policy Institute Briefing Paper. (May 30, 2003)
http://www.epinet.org/content.cfm/briefingpapers_may03bp_lowerdollar
"How Far Will the Dollar Fall?" by Richard W. Rahn. The CATO
Institute. (January 2, 2004)
http://www.cato.org/cgi-bin/scripts/printtech.cgi/dailys/01-02-04.html
"The Weak Dollar Strategy," by Irwin Stelzer. American Outlook Today.
Hudson Institute. (February 23, 2004)
http://www.hudson.org/index.cfm?fuseaction=publication_details&id=3237&pubType=HI_Opeds
==
The effect of the weakened dollar on countries which import goods to the US:
From "Impact of declining US capital inflows," by Hussain Khan. Online
Asia Times. (Nov 22, 2003)
http://www.atimes.com/atimes/Global_Economy/EK22Dj01.html
"The wide range of declining currency inflows into numerous types of
US financial assets makes it almost certain that the dollar, beset by
global security concerns, trade-war anxiety and the crushing weight of
the twin US current-account and fiscal deficits, is heading for a
serious plunge against other currencies."
"A substantially cheaper dollar means serious trouble for the
export-led economies that have traditionally depended on the United
States as importer of last resort, making their goods more expensive.
It is already causing a feeding frenzy in the shark-like world of
currency traders, who have the ability to wreck entire economies
through currency speculation."
(Read further....)
===
Is the falling dollar responsible for the US rise in oil prices? The
following is simply an opinion!
From "Overlooked factor in oil hike: falling dollar," by Richard C.
Leone and Bernard Wasow. Christian Science Monitor. (April 7, 2004)
http://www.csmonitor.com/2004/0407/p09s02-coop.html
"Gasoline and heating-oil prices in the US are at an all-time high and
rising. But it may surprise Americans to learn that in Europe, they've
essentially remained steady. Why the cost difference?"
"While remedies such as encouraging more efficient use of energy are
good, they won't negate the fact that a declining US dollar is an
important cause of the run-up in oil prices."
"Dollars today simply do not possess the same purchasing power that
they did a few years ago - a situation that will persist as long as it
is painfully obvious that the administration has no plan to reduce the
deficit. As the value of the dollar falls, of course, OPEC raises the
dollar price of oil."
"So as Americans flinch when they pump ever more expensive fuel into
their tanks, they might reflect on the decline in international
confidence in the dollar. It is more proof of the adage, "there's no
such thing as a free lunch."
===
An excerpt about the falling dollar and it's impact from an interview
with Norbert Walter:
"Norbert Walter, Chief Economist at Deutsche Bank, discusses the
impact the dollar's fall on the global economy and the outlook for US
currency." Expert, #2 (405) January 19, 2004.
http://eng.expert.ru/economics/04-02walter.htm
"The fall of the dollar has had a number of consequences. First, it is
making US producers more competitive in terms of price. As a result of
the weak dollar, their competitiveness will definitely increase and in
time, this will lead to a correction of the US' unacceptably large
imbalance of payment."
"Secondly, with time the dollar's decline will affect the cost of
financing. If the dollar will continue to fall, depositors will
obviously want a bonus in the form of additional interests on their
deposits as a compensation for risk. This, in turn, will increase
financing costs for US consumers and investors.
* The resulting rise in interest rates will weaken consumer demand in
the US and reduce the volume of goods imported into the US."
Impact of the falling dollar on Japan and Europe:
"Both factors will have an adverse impact on the economies of exporter
countries. They risk losing a certain market share and their sales
growth could decline significantly.
* This is especially urgent for Japan, Europe and, to a considerably
lesser extent, China, which to all appearances is headed toward an
overheated economy.
"To withstand these negative consequences, these countries should
stimulate their domestic economies via fiscal and monetary policy.
* "However, both Japan and Europe have rather limited room for
maneuver. They have practically no room to lower their interest rates
and their government budgets are already encumbered with expenditures.
Thus, the weakening of the global economy will be the most probable
consequence of the dollar's decline."
==
From "Q&A: Why the dollar's in decline." BBC News UK edition. Feb 18, 2004.
http://news.bbc.co.uk/1/hi/business/3303549.stm
Some excerpts:
"The US economy is pretty perky at the moment, growing by more than 8%
at the last count. But this has produced a curious effect.
"As US growth outpaces the global average, its consumers pull in ever
more imports, and the country needs to borrow to finance the trade and
current-account deficits that result. Globally, goods and services
flow into the US, while cash flows out, producing a constant pressure
on the value of the greenback. And Washington's once-ironclad
commitment to a strong dollar seems to have waned, perhaps because
politicians realise that America stands to gain from having a weaker
currency."
Effects:
* "The value of the dollar plays an absolutely central role in the
global economy. Oddly perhaps, the US suffers least of all. Although
its rampant consumers will find it harder to slake their thirst for
imports, its companies will become far more competitive, reaping
profits and boosting jobs.
* Meanwhile exporters in Europe and Asia have found it harder to sell
their products into the US market."
(Read further....)
==
Potential impact on the European economy from a 2002 article:
From "Europe hit by fall of US dollar," by Peter Ford. The Christian
Science Monitor. (July 18, 2002)
http://www.csmonitor.com/2002/0718/p01s03-woeu.html
Some excerpts:
"The rapidly sliding dollar poses as many problems for Europe as it
does for the United States, economists say.
Among the concerns:
* "A weak dollar means a strong euro, and that hurts European exports.
French cheese and Scandinavian furniture, not to mention steel and
automobiles, are now more expensive abroad. Every 10 percent
appreciation of the euro knocks a percentage point off the European
Union's GDP, say economists at the German bank Dresdner Kleinwort
Wasserstein."
* "Central European currencies and stock markets are rising quickly -
too quickly. That's destabilizing for developing economies......."
* "The heart of the problem is that a higher euro will make exports
from the 15-member European Union less competitive on international
markets. And for the last three years, it has been exports that have
largely driven economic growth in the EU.
"The picture is even bleaker in central European countries, whose
emerging economies are dangerously export-dependent. The rise of local
currencies there against the dollar threatens thousands of
bankruptcies and tens of thousands of layoffs, just as the former
Soviet bloc nations are finding their economic feet."
(Read further..
==
Read numerous comments from readers about how the falling US dollar
has affected them on a personal level:
See "Falling dollar: Are you affected?" BBC News. January 13, 2004
http://news.bbc.co.uk/1/hi/talking_point/3373849.stm
"The US dollar is tumbling from one record low to the next - in stark
contrast to the once-sickly euro and the British pound, which is at an
11-year high against the US currency.
"The good news is that a weak dollar makes US products and holidays
cheaper as well as imports like oil more affordable."
"But there is a sting in the tail: Americans will buy less with their
weak currency, hitting exporters all around the world."
Read comments........
==
The falling dollar may bode positive for US manufacturing, but will
foreigners pull out of US investments?
From "Euro's gain not a major pain - Economists doubt the currency's
record run will hurt the U.S. economy; in fact, it could help," by
Mark Gongloff, CNN/Money. (December 29, 2003)
http://money.cnn.com/2003/12/29/news/economy/euro/
"All in all, the euro has risen nearly 20 percent against the dollar
this year, meaning a greenback won't buy as much Belgian chocolate in
Brussels, but otherwise providing a boost to the U.S. economy and
corporate profits,
* since it makes American-made goods cheaper for European buyers."
* "If the dollar continues to weaken at a controlled pace, it's a net
positive for the U.S. economy," said Anthony Chan, chief economist at
Banc One Investment Advisors."
* "Greater foreign demand for U.S. goods would spur more domestic
production, creating much-needed manufacturing jobs and giving a boost
to the world's largest economy."
* "The fear among some investors and economists is that, with the U.S.
trade deficit swollen to enormous heights, the dollar's decline could
turn into a rout, pushing foreign investors out of U.S. assets, which
would hurt U.S. markets and the economy."
"If those investors decide to end that relationship, things could get
ugly in a self-feeding cycle, with falling stock and bond prices
fueling more and more selling of U.S. stocks and bonds, further
depressing the dollar. The result would be higher interest rates and a
slowdown in economic activity."
==
Read more about "exporter's delight" and "stock market doom" in the
following article:
"The danger of the falling dollar," by Mark Gongloff, CNN/Money.
(March 5, 2003) http://money.cnn.com/2003/03/05/news/economy/dollar_drop/
Exports:
* "U.S. exporters would certainly love to see a falling dollar, since
it makes their goods more competitive overseas. That'd be especially
good news for the manufacturing sector, which has struggled since late
2000, leading to about 2 million job cuts. And when dollars buy less,
that means inflation is rising, which could ease some of the recent
fears about the economy falling into a Japan-like spiral of deflation,
an unstoppable drop in prices that cripples corporate profits."
"You could always think of a weak dollar as having the same impact as
low interest rates," said Brown Brothers Harriman currency economist
Lara Rhame. "It has a stimulative impact on the economy and puts
upward pressure on inflation. That's a net gain for the U.S. economy."
* "But that's also a net loss for other economies, such as Germany and
Japan, which have been struggling. A slump in economic activity in
those countries could sap some demand for U.S. goods."
Investments:
* "What's more, a falling dollar could discourage foreign investors in
U.S. financial markets, since the returns from their investments are
coming in ever-less-useful dollars. That cuts the prices of stocks and
bonds. In order to entice bond investors back to the market, yields
have to go up, putting upward pressure on interest rates."
"Foreigners own 11 percent of U.S. stocks -- that's not huge, but at
the margin it makes a big difference," said BMO Nesbitt Burns chief
economist Sherry Cooper. "And right now there's massive foreign buying
of bonds because they're a safe haven amid geopolitical uncertainty --
that could change as well."
==
From "Falling Dollar." Online Newshour. April 2004
http://www.pbs.org/newshour/bb/economy/jan-june04/dollar_04-19.html
Excerpt:
PAUL SOLMAN: At New York's International Gift Fair this year, American
vendors could afford to be playful......"American producers should
have been upbeat. The U.S. dollar had been falling in value against
the world's major currencies, making U.S. goods and services cheaper,
and thus more saleable abroad."
"American consumers, meanwhile, stood to be hurt. A drooping dollar
means that foreign imports should cost more, from Murano glassware to
French candles, to the Middle Eastern oil that powers the boats that
bring all this stuff to America."
"Indeed, the story of currency exchange is a story of winners and
losers no matter where you turn. Most of the sellers here were
foreign. With rising currencies, they were afraid of becoming losers."
(Read on, including parts of an interview with Tom Easton from the
Economist magazine....
PAUL SOLMAN: "Thus it was that when Europe's finance ministers met in
Boca Raton, Florida, recently, they hoped to halt the dollar's fall to
preserve European jobs. And, they argued, to preserve Europe's
economic revival, so important to fueling the global economy. U.S.
Treasury Secretary John Snow, to the right, was worried about U.S.
jobs. This has been an American theme at such meetings for the past
few years: That a lower dollar would help us by making U.S. goods and
services less expensive abroad. That would increase U.S. exports, help
save U.S. jobs. Though of course, it means imports cost more in
America for consumers."
(Read full interview for the effects of the falling US dollar........)
===
An opinion concerning the impact of the falling US dollar versus the
inflated US dollar follows:
From "Testimony on the impact of overvalued dollar on the American
economy," by Robert Blecker. Viewpoints. Economic Policy Institute.
(September 3, 2003)
http://www.epinet.org/content.cfm/webfeatures_viewpoints_dollar_value_testimony
Copyright restrictions prohibit any copy or excerpt of this article.
Some main points of the speech are synthesized below: (please see
article for more info and dollar figures)
* The inflated dollar has had a direct responsibility for the US trade defict
* The past rise in the US dollar has been responsible for:
A large loss of US manufacturing jobs
A steep decline in US manufacturing profits
A reduction in capital expenditures at U.S. manufacturing plants
* The current decline in the US dollar to a more reasonable level in
respect to the Euro gives hope to a faltering US manufacturing sector
* The Japanese have actively managed to manipulate their own
currencies, keeping the yen from rising while amassing enormous
reserves of US dollars (over $1 trillion), thus maintaining an
"artificial" competitive advantage in the US market.
* The US needs to pressure our leading trading partners (including
Japan) to stop the artificial manipulation of their currencies and
allow them to rise to meet the market equilibrium to help alleviate
the chronic trade surpluses with the US.
===
The following article provides an interesting view of the impact of
the falling dollar on certain global economies. I have pulled out some
relevant excerpts concerning the fall of the dollar in relation to
Europe and Japan.
From "US Dollar Decline: Who Suffers?" PricewaterhouseCoopers. March
2004 (reprinted from World Markets Research Centre Limited)
http://www.pwcglobal.com/extweb/newcoatwork.nsf/docid/2ABDA23B8CE50DD885256E5F00632A8F
"The dollar started falling on a trade-weighted basis around the
beginning of 2002 (ironically just as the US was coming out of
recession) and has been largely on a declining path ever since (albeit
a relatively benign and gentle descent).
"As time has elapsed, the dollar slide has begun to cause stirrings of
discontent. Into 2004 the dollar has hit a succession of record lows
against the euro (with even greater irony, at a time when US economic
activity was firming), and is hitting eight-, nine- and 10-year lows
against major European currencies."
Europe: Bearing the Burden
"The shift in the dollar is really being felt in Europe, together with
other major industrial states outside of Asia. Almost all major
European currencies were beginning their ascent against the dollar at
the end of 2001, and have continued with gains typically of 30-40%
following lows of 2001. No major floating currency has been spared the
fall of the dollar, with the euro the most obvious beneficiary, if
such a term is applicable, to dollar decline."
"The reaction of eurozone members to dollar decline has been slow.
Part of that was because all accepted that some readjustment of the
dollar in 2001 (with record highs against the euro) was necessary. A
stronger euro both helps to stimulate sclerotic domestic demand (even
at the cost of a greater propensity to import) and would help lower
inflation impatiently bubbling above the 2% target ceiling of the
European Central Bank."
"As the euro has steadily climbed from record lows to start scraping
record highs in more recent months, complaints and concerns have begun
to be heard in various European capitals. Perhaps most vocal to date
has been European Central Bank chief Jean-Claude Troche, who described
dollar depreciation against the euro as "brutal". Many in the eurozone
are bracing themselves for worse......"
Asian Currencies: Holding Back the Tide
"Whilst currencies in other industrialised (or advanced emerging)
economies are largely floating, Asia remains far more wedded to
currency control. Amongst those with pegs in place, or with tightly
managed currencies, are Malaysia, Singapore, Hong Kong, most
notoriously China, and, some might argue in recent times, * Japan.
"The dollar has recently dropped to three-year lows against the yen
(although on a trade-weighted basis, or in comparison to the euro, yen
appreciation does not look particularly great). The accusation is that
the ability of the yen to hold below around US$1:¥105 in recent weeks
is the product of an active Bank of Japan willing to put itself out to
intervene.
** The ability of the Bank of Japan to influence the currency markets
should not be underestimated. The Bank is sitting on the largest war
chest of foreign currency in the world."
===
What will happen if Japan decides to withdraw it's support for the US
dollar? Many analysts cite Japan's dependence on exporting goods to
the United States as a reason why Japan will try continue to support
the dollar and devalue the yen.
From "All eyes on Japan - Japan's support of the dollar may have
ended; does that mean U.S. rates are headed higher?" by Mark Gongloff,
CNN Money (March 31, 2004)
http://money.cnn.com/2004/03/31/news/economy/japan/
While the Japanese central bank has propped up the US dollar for a
long while in an effort to control the Yen, a drop of support in March
led to speculation about what might occur if the Japanese economy
continues to recover and the central bank loses some of it's interest
in US currency.
"Since the start of the year, the Japanese central bank has pumped
some $144 billion into U.S. Treasury bonds, after buying more than
$200 billion of Treasurys last year. By cashing in its yen for dollars
to buy bonds, the Bank of Japan hopes to keep demand for dollars
strong and weaken the yen, a boon to Japanese exporters, who are key
to safeguarding yet another fragile recovery in the world's No. 2
economy."
"But the bank's aggressive campaign has apparently ended in recent
weeks, according to traders and news reports, and the yen has rallied
furiously as a result. Though some say Japan's central bank is simply
cooling its heels at the end of Japanese fiscal year and is ready to
jump back into the market to weaken the yen, there are also signs that
the Japanese economy is finally coming out of its long slump."
"An economic recovery could draw investors to Japan, increasing demand
for Japanese stocks, for example, and decreasing investors' appetite
for Treasury bonds, the dollar and other U.S. assets. In that way, the
market would work against future central bank efforts to prop up the
dollar."
"The net result on the other side of the Pacific would likely be a
weakening dollar -- adding to inflation -- and higher interest rates."
"Still, most analysts aren't worried about a precipitous decline that
would threaten the health of the U.S. economy.
* "For one thing, Japan has no interest in helping such a disaster
occur, since a slowdown in the U.S. economy would only hurt its own
ability to export goods to the States."
===
Economic "Predictions" for 2004 including impact of the falling U.S. Dollar
From "Top-Ten Economic Predictions for 2004," by By Nariman Behravesh,
Chief Economist, Global Insight. (2004)
http://www.globalinsight.com/Highlight/HighlightDetail720.htm
Don't forget that these are "predictions"
"Economic growth in 2004 will be the strongest since the bursting of
the high-tech bubble in 2000, for both the U.S. (4.7%) and global
(3.7%) economies. The main drivers of the recovery will be tax cuts
and low interest rates. The United States and non-Japan Asia will
continue to enjoy the fastest growth.
** "For the United States, a weak dollar will be an additional source
of stimulus. As a result, the beleaguered manufacturing sector will
finally enjoy a year of strong, uninterrupted growth - barring any
unforeseen shocks."
The U.S. Current Account Will Hit New Records:
"With the U.S. economy still growing faster than most other parts of
the world, the U.S. current account deficit will exceed $600 billion
and 5% of GDP by the end of 2004. This is equivalent to the GDP of
Australia or the Netherlands. This deterioration will happen despite,
or because of, the 20% drop in the U.S. dollar over the past two
years. Typically, when the dollar falls, import prices rise faster and
earlier than the downward adjustment in import volumes. This usually
means that the current account deficit will worsen before it
improves."
The Dollar Will Keep Falling:
"The unwillingness of foreign investors to keep financing the
ballooning U.S. current account deficit means that the U.S. dollar
will have to fall further to correct this large imbalance in the world
economy. Another 10% drop in the value of the greenback against key
industrial economy currencies is likely over the next year. This means
that the euro could reach $1.35 to $1.40 by the end of 2004, provided
that the ECB does not intervene in the currency markets. Similarly,
the yen could rise to around 100 per dollar by year-end,
notwithstanding attempts by the Japanese government to slow its
ascent. Other Asian currencies, though, will rise by less (if at all).
There is a small chance that, for strictly political considerations,
China will allow the renminbi to appreciate a little in 2004. But the
impact of this change on trade will be negligible."
==
From "Foreign banks may impact mortgage rates," by Greg McBride.
Bankrate.com (January 26, 2004)
http://www.bankrate.com/brm/news/bank/20040126a1.asp?prodtype=bank
Effect on Japan:
** "As a result of the falling U.S. dollar, American products imported
into Canada or Japan are more attractive on a relative basis, and
exports to the U.S. less competitive."
"While this has been a well-deserved boon to U.S. manufacturers, it
has left foreign counterparts reeling. With no prospects for immediate
Federal Open Market Committee interest rate hikes and soaring U.S.
budget, trade and current account deficits, the dollar has fallen out
of favor in world currency markets."
"In an effort to prevent a currency-induced economic weakening, The
Bank of Japan has taken steps to keep the home currency from rising
further against the U.S. dollar. For months, this has meant buying
U.S. dollars, with the proceeds earmarked for Treasury securities."
Additional References
=======================
Ireland: "Dollar fall is mixed blessing," by Michael Murray. The Post
IE (January 04, 2004)
http://archives.tcm.ie/businesspost/2004/01/04/story321948631.asp
==
An interesting article:
"Why the dollar is different: Europe, Japan, and China, unlike the
United States, are all locked into export-driven policies dependent on
U.S. markets and competitively cheaper currencies. That's why there
are likely limits to dollar depreciation," by Criton M. Zoakos. The
International Economy. (Fall 2003)
http://www.findarticles.com/p/articles/mi_m2633/is_4_17/ai_111013452
"Europe, Japan, China, and the Asia-Pacific region are all
export-driven economies whose growth depends on U.S. markets. The U.S.
economy depends for its growth on internal, entrepreneurial high-tech
ferment. So long as this ferment keeps providing rates of return on
capital higher than those in the rest of the world, international
demand for U.S. investment assets will continue to be higher than U.S.
demand for foreign goods and services."
==
Economist Articles:
Unfortunately, the articles from the Economist are not free.
Therefore, I have provided a list of titles you may be interested in
buying for their content. You may buy each article for $2.95.
http://www.economist.com/search/search.cfm?qr=falling+dollar&area=5&Submit2=Go
You may continue to search the pages that follow from the link above.
1. Competitive sport in Boca Raton
Europeans think the dollar is in danger of becoming too weak;
Americans disagree. Who is right?
(From The Economist print edition) Feb 5th 2004
2. A cliff-hanger
How might a weak dollar affect the global economy?
(From The Economist print edition) Jun 6th 2002
4. Holding back the flood
Companies are increasingly protecting themselves against the dollar's fall
(From The Economist print edition) Feb 19th 2004
7. A faded green
The dollar will need to fall further to eliminate America's imbalances
(From The Economist print edition) Dec 4th 2003
8. The not-so-mighty dollar
The dollar's slide has further to go, but if handled carefully it
could help not harm the world economy
(From The Economist print edition) Dec 4th 2003
===
I certainly hope I have provided an understandable overview of this
interesting but complex topic. I recommend you look up the Economist
articles if you have some time before you leave on your trip, as the
titles themselves sound interesting!
If I can clarify anything further, please don't hesitate to ask and I
will be happy to help if I can.
Sincerely,
umiat
Google Search Strategy
the falling dollar
impact of falling US dollar on Japan 2004
US Dollar Decline: Who Suffers?
impact of falling US dollar on European economy
declining US dollar AND Japanese economy |
