The U.S. dollar is at 1.073 this morning. This continued drop had me thinking. The U.S. has been trying without success to get China to float it's undervalued currency. This situtation is largely to blame for Americas large trade imbalance.

I wonder if this is a deliberate devaluation of currency. Although this is risky in terms of selling off assets too cheap, there are some obvious benefits. America could pay down its war debts with a devalued dollar. As well, exports will go up as their currency declines. This is similar to the silent Liberal policy of currency devaluation here which ultimately lead to a recovery of our economy. The same thing has happened in Australia and New Zealand where their economies have rebounded and their value of their currency is more in line now than 5 years ago.

Am I all wet or does any of this make sense?

 

Isn't it too early in the day out west to be thinkin' like this???

I do see your case and it's interesting, and quite possible. What will things look like in 12-24 months... it's going to be interesting...

 

i don't believe a weaker dollar is going to help their trade deficit any time soon. i look at my own industry (stainless steel manufacturing). many new goods coming from china have a finished goods cost landing on north american soil that is still lower then my cost for raw materials. i don't care how low your dollar is... it won't help in that type of situation.

 

It makes a lot of sense and you are correct on the economical effects within the specific countries. The loss of manufacturing and trade deficits that the US holds has forced the public to put pressure on the politicians to change things. If liberal currency revaluation is happening, I can’t see it. It is kind of odd not to see John Snow all over the news anymore, while Bush has picked up the ball. (I don’t know if Snow is still in office)

However, there is strong data which points that China should not float their currency, yet. They would screw themselves if they devalued their currency because of their reserve holdings. There was a very interesting paper published on the BoE’s site. “Will China Eat Our Lunch or Take Us to Dinner?”

http://people.bu.edu/kotlikoff/China.pdf

 

I always seem to be the caboose.

 

the euro and gbp is still realyl high right now so paying off debt is not an option. however the us dollar combined with a strong canadian dollar making it almost if not in a couple days par is making me think i should definately transfer a large portion of my funds to US currency and wait for this to blow over and transfer everything back to canadian making a tidy profit.

another theory is the united/canada currency which they have been pondering for the last decade or so. i like the idea, it's especially good for people like myself who travel often to the US.

 

Their foreign exchange reserves must grow with their economy because they are on a fixed exchange rate system:





And China isn't being forced to "devalue" their Yuan, but rather "revalue" it.

If they revalue, I believe it'll hurt both the U.S. (by making our deficit harder to finance) and China (by slowing their sensitive export economy).

I also believe that the U.S. is intentionally lowering their exchange rate for the dollar with low interest rates to combat the deficit... even though it's probably not the best policy.

 

This got me thinking and it is way too late to think...

 

My oh my. 1.04834. So close to par. Pretty soon we will have to start sorting through our change and taking out the American coins.

 

hahaha, I already do that but I assumed that they were worth more......LOL, now all that change I saved is only about par........

C.

 

LOL Good one.

 

Nnnnooo, man i used to take so much advantage of convertng USD to CAD...Now its not as much fun.