by Seth Sandronsky
May 27, 2003
Treasury Secretary John Snow recently talked about the high market value of the dollar. And the currency market continued to walk away from the greenback.
Snow had suggested that the Bush White House is no longer wedded to the dollar’s high-value versus the euro and the Japanese yen. In contrast, the Clinton White House had backed a strong greenback under Robert Rubin and Lawrence Summers, treasury secretaries between 1992-2000, respectively.
The value of the euro has been steadily climbing versus the dollar during the past year. Snow’s remarks, though later countered by chief Treasury spokesman Rob Nichols and White House spokesman Ari Fleischer, could hasten this trend.
Well, is the declining dollar useful? That depends on whose ox is being gored.
A continued fall in the value of the dollar could help American manufacturers. The strong dollar has driven up the cost of U.S.-made goods around the world, slicing the market share and profits of affected American corporations.
This has also harmed U.S. workers. A total of 95,000 manufacturing jobs disappeared in April, according to the Labor Department.
For the previous 12 months, there was an average monthly loss of 40,000 jobs in America’s manufacturing sector. Typically, such employment is high-paying and unionized.
Crucially, American manufacturing workers are competing in a world market glutted with an over-supply of cars, coffee, computers, and much more that can’t be profitably sold. Politically, the Bush White House no doubt plans to seek support from those manufacturing workers who might benefit from a weaker dollar.
But under a market economy, nothing is certain for such employees except that their employers everywhere and all the time try to grow by squeezing consumers and workers.
“To a some extent, the corporations will take advantage of the falling dollar by raising prices, rather than raising employment or wages,” noted James Devine, a political economist at Loyola Marymount University in L.A.
What about other U.S. job sectors and the falling dollar?
“There are major parts of the economy i.e., services which will not benefit from the falling dollar since their products aren’t sold internationally,” Devine added.
Moreover, service workers are less likely to be in trade unions than those who work in manufacturing. Bush’s 2004 re-election campaign is surely aware of this as it seeks the blue-collar vote.
Meanwhile, the world currency market shifts from the dollar to the euro, as foreign capital continues to flow to the U.S. to the tune of $1 billion-plus per day. This large flow of foreign funds into America is connected with the greenback’s rise and fall.
Lured partly by the strong dollar, this financial process helped to lubricate the credit boom of the 1990s, which, in turn, inflated the dot-com and stock markets. President Clinton took the praise for both bubbles, now burst.
It is worth noting that in 2003, America continues to greet foreign lenders with open arms. In contrast, some foreign visitors are less welcome, and soon will be scrutinized with new identity technology as they cross U.S. borders.
In the meantime, the bloom may soon be off the rose of the current high debt loads for U.S. consumers and corporations, fueled by foreign lenders. Why?
Consider the process of economic growth based on structures of debt (private and public) that must increase for the American economy to continue being the leading buyer of other nations’ goods and services. The IMF has warned that this trend is not sustainable for America, hence the world.
This makes foreign lenders holding dollar-based investments (bonds and loans) a bit nervous. Snow’s recent dollar remarks confirms what the IMF has publicly stated.
What’s at stake?
“A lot of observers point to the need for the recovery of the economies outside the U.S. in order to push the world economy upward,” Professor Devine noted. “The U.S. role of stimulating the world economy through tremendous spending and borrowing seems to have run its course, as indicated by the falling dollar.”
He doesn’t expect that the dollar’s drop will stimulate the global system.
Against this backdrop, Snow’s comments about the administration’s new dollar policy flows from imbalances in the world market.
This lack of balance is “natural” to markets for currency and other commodities. Market instability is a term used to say that nobody is really in control.
Seth Sandronsky is a member of Sacramento/Yolo Peace Action, and an editor with Because People Matter, Sacramento's progressive newspaper. Email: firstname.lastname@example.org