
A strengthening dollar is bad for the world economy - dx034
http://www.economist.com/news/leaders/21711041-rise-greenback-looks-something-welcome-ignore-central-role
======
abhv
1\. Trump will spend, reduce taxes, increase debt, and therefore US interest
rates will have to go up.

(This happens whenever a government promises to spend a lot on infrastructure
improvements.)

2\. Foreign investors anticipate this and are buying US dollars. This makes
the dollar stronger w.r.t. other currencies.

I think a strong currency is usually a good thing in a scarce market
environment. It means that your country can buy a lot of the world's natural
resources easier than others. This should usually be a good thing (for the
US).

But there is a problem:

The US doesn't actually do anything with natural resources anymore, we don't
make things like steel or plastic etc anymore, or rather, we don't "add value"
to natural resources. Instead, with a strong dollar, we let others add the
value and (import) buy their finished goods. The few things that we do make
become more expensive to others, so our exports decrease. Domestically, there
are fewer "manufacturing" jobs.

Trump will try to stop this and the only tool he has is to increase import
tariffs. This article seems to equate that with global financial ruin, and it
is the point of contention that I want to raise.

These two facts: raising import tariffs and a strong US dollar may help cancel
out the effects. Instead of destroying foreign markets, it may simply
"transfer" who gets the surplus generated by the strong dollar from the
foreign markets to our tax base.

~~~
strictnein
> "The US doesn't actually do anything with natural resources anymore" ... "we
> don't "add value" to natural resources"

Not sure that's accurate. The US refines more oil than any other nation.

[http://www.hydrocarbons-
technology.com/features/featurethe-1...](http://www.hydrocarbons-
technology.com/features/featurethe-10-biggest-oil-refining-countries/)

And is #4 in steel production

[https://en.wikipedia.org/wiki/List_of_countries_by_steel_pro...](https://en.wikipedia.org/wiki/List_of_countries_by_steel_production)

~~~
PietdeVries
This seems true for most modern, western economies: they are migrating from a
producing economy to a service & knowledge economy. Logistics is big (moving
stuff) and services are big (consultancy, lawfirms, etc), but the actual
factories are gone. And that makes sense: with higher education levels you can
make more complex things than the "regular" factories do. Stuff that requires
trained staff - brains.

Oh - and btw: the US likely not only refines most oil, it also consumes it:
the US have grown to a country based on consumption, spending and borrowing,
but not on producing anything. So if goods only come in and money only goes
out, there comes a time where the money is gone. And that is when the trouble
starts...

~~~
strictnein
> "but not on producing anything"

That's just not accurate. The US produces and exports a wide variety of
petroleum based products and lots of oil as well. We import a lot of heavier
oil, because we have the capacity to refine it (unlike most nations) and
export a lot of the easier to refine stuff.

[http://money.cnn.com/2016/06/06/investing/us-oil-exports-
inc...](http://money.cnn.com/2016/06/06/investing/us-oil-exports-increase/)

[https://www.eia.gov/todayinenergy/detail.php?id=25532](https://www.eia.gov/todayinenergy/detail.php?id=25532)

And, the US industrial output is at its highest point ever.

[https://fred.stlouisfed.org/series/INDPRO](https://fred.stlouisfed.org/series/INDPRO)

~~~
frozenport
I think you need to normalize by population to get a sense for how much, we as
a people, are producing.

[https://www.wolframalpha.com/input/?i=(industrial+production...](https://www.wolframalpha.com/input/?i=\(industrial+production+index\)%2F\(us+population\))

Here the story is that our product has peaked around 2000, and has been doing
down ever since.

~~~
dsp1234
Except that story would not be true, as it clearly goes up, and has a higher
peak _after_ 2000.

~~~
frozenport
Yeah around 2007, but this was relatively short lived.

At the end of the day the perception that economic output is dropping (slope)
is valid if you consider it on a per capita basis. Now I'd you consider that
the jobs and profits aren'disturbed equally, you can see why Trump won.

------
unknown_apostle
Nobody seems to mention the interesting issue that goes to the heart of
Trump's and Bannon's economic nationalism.

Decades of supposedly "allowing" China and Mexico to steal US jobs has a
different side not often discussed. It was one way to deal with the _Triffin
dilemma_.

With great power comes great responsibility. As long as the US has the
privilege to print the world's reserve currency, it has the responsibility to
keep the planet flooded with sufficient dollars.

Therefore, I'm (genuinely!) not sure for how long they will be able to combine
a strong dollar, run deficits, manage the debt, boost US exports at the
expense of others, help those other countries with any dollar shortages and
keep the global monetary order friendly and stable -- all at once.

I do know that when the world meets with the Triffin paradox in one variety or
another, big changes have occurred. Right now the pundits are comparing Trump
to Reagan. Maybe in a few years they will end up comparing him to 1971's
Nixon.

~~~
digi_owl
I guess there is always the bancor option...

[https://en.wikipedia.org/wiki/Bancor](https://en.wikipedia.org/wiki/Bancor)

------
scotch_drinker
Maybe this is true, maybe not but sometimes, it's ok for things to be bad for
the economy. The economy isn't supposed to always go up and when we meddle in
an attempt to iron out the bumps, we only serve to make the future bumps much
worse. I wish our leaders and economists would both believe this and
succinctly explain it to the public.

~~~
twoquestions
I agree that we should tamper with natural economic forces as little as
possible, we should remember that even economic nature can be a cruel, cruel
bitch. Read the following for why we should sometimes risk economic meddling,
despite the costs and risks.

[https://morecrows.wordpress.com/2016/05/10/unnecessariat/](https://morecrows.wordpress.com/2016/05/10/unnecessariat/)

TL;DR: Being on the bottom of the economic ladder is terrible and near
impossible to escape.

~~~
scotch_drinker
Totally agree. I would have far preferred the bailout in 2008 to be put into
an infrastructure program that put those classes of people to work instead of
enriching the Wall Street crowd. But, no one asked me. Government should
protect the unprotected and let everyone else fend for themselves. Instead it
does the opposite these days, at least in America.

~~~
infinite8s
It's always done that, except for the few glory decades after the great
depression (and the needed a world war to jumpstart)

------
kurthr
Contrary to the article, I thought that it was the $2.6T tax holiday
(significant even to the currency market) which Trump promised that caused the
currency speculation and rapid rise in the dollar. It may be true that most of
the money is held by big corps offshore as $ denominated securities... but it
still seems like a transfer out (and directly spending those untaxed $ in the
US) would necessitate someone else (foreign?) buying those securities with
other currency (and those offshore banks maintaining $ reserves). That should
cause a medium term (years) rise in the $ relative to those currencies.

[https://www.bloomberg.com/news/articles/2016-11-17/a-2-6-tri...](https://www.bloomberg.com/news/articles/2016-11-17/a-2-6-trillion-
myth-for-the-dollar-trump-tax-holiday-is-a-dud)

------
rrggrr
Necessitated by artificially low interest rates in the US, and a flight to
relative safety as compared to Asian and European currencies. The reckoning
has been deferred for too long and an orderly adjustment will be impossible if
there is more delay.

~~~
emp_zealoth
To me it became clear that current global finaces are completely unhinged from
reality at least 5 years ago, if not 10. I also am becoming more and more sure
it was all fucking Thatcher and fucking Reagan who are at the heart of it all

Not to make a massive dissertation: just look at the debts everywhere, how
nicely exponential they are...

So I'mm sitting here, waiting for the inevitable collapse, hoping it comes
sooner than later (so there might be a slight chance that SOMETHING survives)

~~~
rrggrr
It was neither Thatcher nor Reagan. The answer has a lot to do with post WWII
demographics, Asia's rise, and the ways in which liquidity and debt were added
to the global economy without much thought given to how that liquidity and
debt would be distributed and relieved. We will look back and marvel at the
myopia of the global "boomers".

~~~
zaphar

        We will look back and marvel at the myopia of the global "boomers".
    

All the while suffering from the exact same myopia.

------
andruby
Maybe the dollar is only going "up" because the other economies are scared
shitless of Trump as a president, and their currencies are going down as a
result of the uncertainty.

~~~
danarmak
If other economies are more scared of Trump than the American economy is, and
if both are right to react so, that would imply the markets believe Trump's
promises of benefiting the American economy at the expense of others. Unlike
some common rhetoric that says Trump's proposed changes would harm the
American economy.

Disclaimer which seems necessary even on HN these days: I'm just pointing out
implications, not stating my own beliefs or preferences.

~~~
tveita
As this isn't a zero-sum game, they could also believe the American economy
will do badly but other economies will do even worse.

~~~
up_so_floating
That would be easier to believe if the US market indices were not at all time
highs.

~~~
keywordwilldo39
They're at all time highs with Obama on the outs, and Trump coming in. You
could say that means people are into Trump coming in, pushing them up.
However...

The parent comments are prognosticating. The way the world looks today is not
a good data point when the future includes, what many believe to be, a
wildcard President coming in.

And let's not forget the establishment party with a hard on for regressive
policy control all three branches of US government. Their entire MO of the
last few decades is "no compromises". They've destroyed their reputation as a
group (Congressional approval ratings), but don't care because individually
they're fine. They've shown no desire to improve their image.

So a wildcard President, and a group of stubborn old assholes is in control.
Stick to the guns or spray and pray at the wrong time, and the all time highs
could crater.

------
EasyTiger_
Can always rely on the news outlets to temper optimism in a world which is
bereft of things to be optimistic about.

~~~
mediumdeviation
Economics is not called the _dismal science_ for nothing

~~~
yummyfajitas
That's not why economics is called the dismal science.

Economics is called the "dismal science" because of it's _" find[ing] the
secret of this Universe in 'supply and demand,' and reducing the duty of human
governors to that of letting men alone"._

Carlyle took a different view, feeling that the _" idle Black man in the West
Indies"_ should be _" compelled to work as he was fit, and to do the Maker's
will who had constructed him"._

[https://en.wikipedia.org/wiki/The_dismal_science](https://en.wikipedia.org/wiki/The_dismal_science)

Mencius Moldbug also has an interesting take on Carlyle, suggesting that his
views on slavery and hierarchy were significantly more nuanced than what my
pithy summary above describes. I have not managed to read enough Carlyle to
form my own opinion (maybe on my next 24 hour flight).

[https://unqualified-reservations.blogspot.com/2009/07/why-
ca...](https://unqualified-reservations.blogspot.com/2009/07/why-carlyle-
matters.html) [https://unqualified-
reservations.blogspot.com/2009/07/carlyl...](https://unqualified-
reservations.blogspot.com/2009/07/carlyle-in-20th-century-fascism-and.html)

~~~
maxerickson
Iconoclastic mood affiliation?

------
at-fates-hands
In short, a strong dollar is bad for business, but good for the consumer.

Also, considering how bad the US economy has been, having a strong dollar
means there's a whole bunch of other places that are doing worse then we are,
which is pretty eye opening.

Seems the global economy as a whole is incredibly weak right now.

~~~
sumanthvepa
Perhaps you may want to clarify that a strong dollar is bad for US businesses
and good for the US consumer. It would be the reverse for non-US entities.
i.e. it would be bad for non-US consumers and good for non-US businesses.

------
vinceguidry
Sounds like an excellent opportunity to print more dollars, create some
inflation, increase liquidity in emerging markets, and pay off some of the
national debt.

Am I missing anything?

~~~
theandrewbailey
The people who own said newly printed dollars aren't the people holding the
national debt. The Federal Reserve is not the US Government.

~~~
ensignavenger
You and I may have different notions of what is and is not "the US
Government".

[https://www.federalreserve.gov/faqs/about_14986.htm](https://www.federalreserve.gov/faqs/about_14986.htm)

------
Veen
From a selfish perspective, I'm British and I work for an American company
that pays me in dollars. A strong dollar coupled with the pound going down the
toilet after the brexit vote means I'm quite a bit better off than this time
last year.

------
snake_plissken
Serious echoes of the Asian Financial Crisis of 97/98\. A lot of Dollar
denominated debt being issued outside of the United States with prospects that
the Federal Reserve is going to raise rates.

Although it's a little different, this time, as there are not as many Dollar
pegs left in the world. That was one of the things in the late 90s version;
countries that pegged local currency to the dollar effectively mimicked US
monetary policy, so when the Fed started to raise rates around 1994, they also
had to start raising rates, which meant higher debt servicing costs as it
became more expensive to service US debt in local currency.

------
simonh
With the Dollar as strong as ever against every other currency in the world,
and China taking action to prop up the Yuan, I'm guessing Trump will shelve
efforts to get China labelled a currency manipulator for deliberately
weakening their currency. Right? Or is that not how that works.

~~~
AnthonyMouse
> With the Dollar as strong as ever against every other currency in the world,
> and China taking action to prop up the Yuan, I'm guessing Trump will shelve
> efforts to get China labelled a currency manipulator for deliberately
> weakening their currency. Right? Or is that not how that works.

That is actually the opposite of how that works. China manipulates its
currency to make the yuan weaker against the dollar because it makes Chinese
products cheaper in the US and US products more expensive in China, causing
manufacturers to move to China so they can pay wages in yuan and sell products
for dollars instead of the other way around.

~~~
zaroth
Which is why it was bizarre to read TFA claiming China was taking steps to
_shore up_ its currency against the dollar...?

> The yuan has fallen to its lowest level against the dollar since 2008;
> anxious Chinese officials are said to be pondering tighter restrictions on
> foreign takeovers by domestic firms to stem the downward pressure.

~~~
maxerickson
It's a balancing act. Too weak of a yuan undermines their efforts to shift
towards basing more of their economy on internal consumption.

~~~
AnthonyMouse
> It's a balancing act. Too weak of a yuan undermines their efforts to shift
> towards basing more of their economy on internal consumption.

It is a balancing act but that's not why. A weak yuan promotes internal
consumption in China for the same reasons it promotes US consumption of
Chinese goods.

But once the yuan is weak enough that manufacturing _does_ move to China,
making it even weaker is only throwing money away. It's like selling below
cost to drive competitors out of business -- if you can drive them out of
business by selling for $1 below cost then there is no reason to sell for $2
below cost. Otherwise they would just print a trillion yuan every day.

Also, prohibiting foreign takeovers _doesn 't_ increase the value of the yuan,
it only solves the "problem" of a weak yuan encouraging foreign takeovers. If
Chinese companies can no longer be bought and they're traded in yuan then that
will only _reduce_ demand for the yuan.

------
m00dy
Turkish Lira has lost its value against US Dollar more than 30% in the last
couple of months.

~~~
AnimalMuppet
That might say more about the lira than the dollar, though...

~~~
egeozcan
Exactly, especially when one considers the similar situation against the Euro.

------
st3v3r
Are there better terms to use than "strong" and "weak" when it comes to this
stuff? One of the problems with using those is the emotional impact of those
words. A Strong currency makes your goods more expensive for people around the
world, so you'd want to Weaken it. But nobody wants to say, "I want to weaken
our currency." People want a Strong currency. It sounds good. "We're strong."

~~~
snrplfth
Exactly. See also: "trade deficit/surplus" and "value". Economists use all
sorts of jargon that really does not convey to the layman what it actually
means.

------
spectrum1234
This author doesn't understand basic economics. He is negating all sorts of
feedback loops that keep things in check. He is also completely ignoring root
causes or attempting to address this issue at large.

Is there an app that makes me aware of articles I'm reading by authors I've
flagged as incompetent? Seriously.

~~~
AnimalMuppet
Rather than complaining of incompetence and ignorance, you _might_ supply some
actual corrections...

------
lefty2
The dollar is only temporarily strong, because people think Trump will improve
the economy. When that fails to happen it'll just drop again. Problem solved.

