The Dollar slide hurts, Part II
A year and a half ago I warned web masters that the US Dollar would continue to slide. This year, the US Dollar weakened significantly against the Canadian Dollar.
The last time I wrote about this issue, in June, we were approaching parity with the Canadian dollar, at $1.05. Today, parity looks optimistic.
The paradox of this situation is that most Americans do not care — many of them are not even aware of it. Last time, someone thought I was an idiot for even taking the time to write about it!
Companies and entrepreneurs are shifting their focus from the United States to international markets. If you haven’t begun to look into this yet, you should. While international stock markets may be speculatively priced, international growth online represents a great value investment. Not only will it diversify you away from the dollar, you will also have the opportunity to dominate niches which are already mature in the United States.
Yeah, the dollar slide hurts. Non-US web developers feel it when they cash their checks, Americans feel it when they fill their cars up with gas. Use this as an opportunity to diversify internationally and make it a win-win scenario.
Oh yeah, tell me about it, one euro is about $1.44 at the moment, up from $1.35 two months ago, and it just keeps going up (or down) :
Comment by gopher — October 30, 2007 @ 7:50 pm
You were right then as you are now. I believe I agreed with you on that post as well. The problem is that the fed has been inflating the money supply to the tune of 16% a year. As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon.”
Kind of funny how they keep telling us they support a strong dollar, all the while exploding the money supply. I’m not a conspiracy nut, but I think powerful interests are at work to wrest control of major US assets for pennies on the dollar over the coming decade.
Even though I’m a pretty international kind of guy and have lived abroad in several countries, it pains me to see this happening to America and watching working Americans have to pay a terrible price for this. Forcing Americans to compete with slave labor under command and control subsidized economies masquerading as free market economies. That’s not free trade or fair trade.
Comment by Marc — October 30, 2007 @ 7:57 pm
I know this isn’t an econ blog, but does anyone worry about how big these Private Equity Groups are now? Like Blackstone, et al. The swallow multi-billion dollar companies for breakfast without so much as a regulatory peep. Nothing like it since the trusts of the late nineteenth century.
Comment by Marc — October 30, 2007 @ 8:01 pm
If you take a look at the acquisition charts, private equity peaked back around June and has fallen dramatically since. The party is over. It was completely driven by cheap & easy credit and thats gone. Now we get to sit and wait and see if the acquisitions even pan out. Because of the leverage, there is little room for “rough times.” I wouldn’t be worried.
Comment by Andrew — October 30, 2007 @ 11:34 pm
The problem with the theory of a wildly inflating money supply is that other countries are doing exactly the same thing. The low dollar also creates a huge incentive for other countries to push their currencies lower in order to be more competitive with exports.
Which is where the “benefit” to the US comes in.. perhaps US exports are more competitive to the global market. We have been shifting pollution and manual labor to other countries for decades now… just how much support is there for a resurgence of industrial manufacturing at home?
Everyone can and does debate the how & why of whats going on. Whatever exactly is going on, I think its fair to say that the average American is going to pay more and consume less.
Make more money, diversify internationally, and let the bad decisions hurt the people who think they are great.
Comment by Andrew — October 30, 2007 @ 11:46 pm
I see your point Andrew, but I think that’s a very short term phenomenon caused by sub-prime polluting other credit markets. I’d bet it picks up again next year whereas real estate will be on the back burner for years. Private Investment Groups are still just getting warmed up. The unsettling part is that foreign sovereign investment funds can invest in strategic U.S. assets this way and be under the radar in plain site, because the general public won’t be aware. So Wall Street will just keep it on the down-low, because they get paid by making big transactions. I mention this only because once this happens, you wouldn’t believe the things that aren’t supposed to happen that will happen (actually you probably would believe it).
Comment by Marc — November 1, 2007 @ 2:45 am
Great points Andrew, but I’d argue this. As to wildly inflating currency, a few countries are doing the same thing. Notably China. Now if you want to suck the wealth out of a diversified economy and place it in a few hands, inflate your currency and your national wealth will be drained only to be invested overseas. China can afford to play this game with us because they have the head start of much lower costs to begin with. Life is cheap over there.
Yes we have been shifting pollution and manual labor overseas. Is that a good thing? Many industries which have survived, including the auto industry. A better example is foreign autos built in the U.S. They now thrive by removing manual labor and pollution from lots of processes through mechanization.
In fact some industries like construction and some agriculture have retained out-dated business practices by being subsidized by illegal labor in the U.S. This has stunted technological investment in some areas which have been offloading product costs associated with cheap labor to other sectors of the economy. These things don’t disappear, they just get moved around.
Comment by Marc — November 1, 2007 @ 3:17 am
Sovereign investments or not, private equity works because of leverage. Someone has to lend them relatively cheap money in order for it to work.
I am not worried about sovereign investments either. In the 80s everyone thought Japan would take over the world, they were buying up US real estate and assets like crazy (Granted this may not have been concentrated, government money but speculating individuals and companies.) 20+ years later and their own stock market still hasn’t returned to its high point. The point is let other countries buy into a peaking market.
Comment by Andrew — November 1, 2007 @ 6:30 pm