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mhr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 10:53 AM
Original message
US Dollar Set to Weaken
Hi All,

Based on the recent G-7 meeting in Dubai, the US dollar is set to weaken against major world currencies. A report from Stephen Roach, at Morgan Stanley, outlines the currency adjustment process.

In real terms, imported goods, to the US, are set to inflate by around 30% as the US dollar declines in value by about 30% over some future period.

Enjoy
------
http://www.morganstanley.com/GEFdata/digests/20030922-m...

Global: Breakthrough

Stephen Roach (New York)
Morgan Stanley
Sept 22, 2003

An unbalanced global economy has finally come to its senses. At the just-concluded G-7 meetings in Dubai, the worlds major industrial economies have endorsed the basic premise of global rebalancing -- a long overdue adjustment in the dollar. This could well have profound and lasting implications for the world economy. It is an unequivocally positive development, in my view.

Policy statements are always clouded with ambiguity. Thats true of central bank policy directives, as well as communiqus released after G-7 meetings. But for me, the communiqu from the 20 September G-7 meeting in Dubai was crystal clear. Three words said it all -- flexibility and market mechanisms. G-7 finance ministers have finally conceded that more flexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system, based on market mechanisms. In plain English this means that the perils of external imbalances -- massive deficits in America and surpluses in Asia and, to a lesser extent, Europe -- are now center stage. Market-driven currency adjustments are seen as the means to correct these potentially destabilizing external balances. This is a thinly veiled message to the Japanese, suggesting they cease and desist from their campaign of currency manipulation. It also puts other nations on notice who have been pegging their exchange rates -- especially China and its neighbors in Asia -- that there is no escaping the endgame of market-based principles of currency flexibility. But the essence of the message is that an unbalanced world now needs a weaker US dollar.

Snip ......

History tells us that the US dollar has only just begun its downward descent. On a broad trade-weighted basis, the dollar (in real terms) has fallen about 8% from its early 2001 highs. In a full-blown current account adjustment, a drop of around three times that magnitude can be expected -- not all that different than the 30% real deprecation of the dollar that occurred in the late 1980s when the current-account disequilibrium was far less acute. In the end, a lopsided world has no choice other than to accede to a weaker dollar. The G-7sDubai communiqu now puts the major economies of the world on the same page with respect to the global rebalancing that such a currency realignment can trigger. The road ahead will be long and arduous -- and not without risk, especially in oft-volatile currency markets.

Snip ......
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realFedUp Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 11:27 AM
Response to Original message
1. I can never remember
will this mean buying a Bellini in Italy will cost
more with dollars?
:-)
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mhr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 11:41 AM
Response to Reply #1
2. Yes
because when you exchange your dollars for lira you will get fewer lira than you do today. Hence you will need more dollars for the same Bellini.
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realFedUp Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 11:45 AM
Response to Reply #2
3. well, yeah!
that makes sense....thanks :-)
So...fewer Americans, even since 9/11, will travel abroad?
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mhr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 11:47 AM
Response to Reply #3
4. That is Correct
and this will also drive up the cost of imports. So, imported products like cars, electronics, and other goods will all become more expensive for Americans.

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realFedUp Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 11:48 AM
Response to Reply #4
5. only the rich can afford anything anymore....
thanks for economy 101 lessons.
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Francis Donating Member (317 posts) Send PM | Profile | Ignore Mon Sep-22-03 12:34 PM
Response to Reply #2
8. Um being pedantic
That would be euros
The lira alas is no more
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mhr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 12:51 PM
Response to Reply #8
9. For Some of Us the Old World Never Died
Sigh!

Nevertheless, you are correct.
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Francis Donating Member (317 posts) Send PM | Profile | Ignore Mon Sep-22-03 01:03 PM
Response to Reply #9
10. How true
And of course we all had to give up hope of being millionaires, a not unreasonable mountain to climb in liras
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Resistance Is Futile Donating Member (693 posts) Send PM | Profile | Ignore Mon Sep-22-03 11:59 AM
Response to Original message
6. This also means
Devaluing the dollar by 30% will also take a 30% bite out of the profits Chimpy's friends can get by outsourcing jobs to China.

As the article notes, no on really has any choice in this matter. The trade deficit must be paid for somehow; the only options are between paying slowly by dropping the dollar under control or holding the dollar high and waiting for market forces to crash it to its proper value.
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mhr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 12:08 PM
Response to Reply #6
7. Thanks
A very good observation.

One could hope this would stem the tide of high-tech outsourcing. However, even a 30 % drop in slave labor profits will not be enough to prevent good American jobs from going overseas.
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Skittles Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 04:07 PM
Response to Original message
11. the dollar took a beating today
according to the stock market reports
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mhr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-03 06:39 PM
Response to Original message
12. The Fall Has Begun
It seems that there is no time like the present to devalue the dollar.

http://www.democraticunderground.com/discuss/duboard.ph...
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Love Bug Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-23-03 02:02 PM
Response to Original message
13. Will this affect interest rates for mortgages?
I confess I have limited knowledge of economics. Will a weaker dollar cause mortgage interest rates to go up or down?
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Resistance Is Futile Donating Member (693 posts) Send PM | Profile | Ignore Fri Sep-26-03 05:25 PM
Response to Reply #13
14. Currency down, interest rates up (and vice versa)
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