October 1, 2004
From the desk of Jane Galt:Oh where, oh where has the dollar gone . . .
Overheard from a colleague: "The last time I was in London, Robert Guest's book was out, and I wanted to buy a copy, but it was onlyl in hardcover. It cost £20, which is like 85 billion of our dollars."
Posted by Jane Galt at October 1, 2004 2:31 PM | TrackBack | Technorati inbound linksThat must have been the week I was in town. The exchange rate is always higher when I'm there. Sigh...
...another liberal arts grad, it appears.
You want a bad exchange rate? Try Iceland. Jeez, is that place expensive! (although the fact that most goods are imported also contributes to that)
Just got back from Italy, and the euro ain't exactly a bargain for us Yanks, either...
Yeah, you can always tell the liberal arts grads... because they have a sense of humor. ;)
Your colleague is obviously not up on current exchange rates: last time I checked, twenty pounds was only $ 3,475,900 - although my figures MAY not quite right... ;)
Going to have to pay back that $2 trillion in foreign debt some how or another. Better to do it in cheaper dollars I say.
Don't feel bad. The Brits make less than we do and then get to keep less of it, so they can't afford books any more than we can...
Hey, this isn't funny. I live here, but get paid in dollars. All so you people stateside can have low mortgages and increasing home values. What about us building the Empire!
You Wingers sound like a bunch of Canadians.
If you're smart you don't buy stuff from Europe -- You SELL Stuff to them. They want to buy your stuff because now it seems cheap to them -- the key is to make them pay in dollars so you don't have to care about the exchange rate either. The other part of this equation is to make your stuff in Taiwan or China or Singapore and PAY for it in dollars, so you still don't have any exchange rate exposure. If you are smart you TAKE ADVANTAGE of the situation as it is, rather than complain about it.
On rhis basis, when selling to Europe or anywhere else abroad, your operation is at once outsourcing some of its labor and at the same time is a net importer of dollars. This has a positive effect on the balance of trade payments that some ill-informed people talk about.
Whingers never win.
"The Brits make less than we do and then get to keep less of it,"
Maybe, but they have free health care and cheap universities. They have a milder climate, so you don't spend on air conditioning and less on heating. You're more likely to be able to get by without a car, which is a huge bonus for a single person. They make less, but have much longer vacations and shorter hours, so you have more time to enjoy it.
The pros and cons of living there versus America are complicated - there's no objective answer.
But the pound is overvalued vs the dollar at PPP. What do you expect? British interest rates are 4.75% while American interest rates are a third of that. American real interest rates are negative.
"Maybe, but they have free health care and cheap universities.
That's amazing PJ. I had no idea that health care providers work for free and that university staff work cheap in England.
You Wingers sound like a bunch of Canadians.
Depends. Is the winger filled with Molson?
Whingers never win.
That depends upon what kind of weapon the other guy is holding. Suppose we've only gotten through the soup course, and all he has is an oversized spoon...
Speaking of which, all this talk of food is making me hungry.
This is precisely the reason why we should not go overseas.
The Pound is normally over valued against the dollar because a strong exchange rate is a more popular policy in the UK. Why? Well if you’ve lived there you’ll understand that at least 2 foreign holidays a year are de rigueur - thus the British take about 32 million foreign holidays a year while the Americans take just 19 million. So an exchange rate as weak as the dollar is today, while just an interesting anecdote to most Americans might be politically unacceptable in Britain.
The brits have "have free health care".
Is that something else that is worth what
you pay for it? I wonder if Tony Blair
used same free health that his hoi poloi
must rely upon?
Giles wrote:
"the British take about 32 million foreign holidays a year while the Americans take just 19 million. "
Great Britain is 88,745 sq. mi. (source: http://encyclopedia.thefreedictionary.com/Great%20Britain)
Minnesota is 86,943 sq. mi. (source: http://www.enchantedlearning.com/usa/states/area.shtml)
If someone from Manchester visits EuroDisney, it's a foreign holiday.
If someone from St. Paul visits DisneyWorld, it's a much longer distance to travel, but it's NOT a foreign holiday.
Same difference with beach holidys (Cadiz, Spain vs Southern California); glacier walking (Norway vs Alaska); mountain climbing (Swiss Alps vs Sierra Nevada).
My point is, comparing foreign holidays is nonsense.
My cousin, a stockbroker in Philadelphia, claims that the steady devaluation of the dollar is an intentional strategy by the U.S. government to make American exports cheaper. He thinks the chickens will come home to roost when foreigners -- especially the Chinese -- tire of the paltry returns on their investments and decline to continue financing our growing deficit.
Of course, by that time, Bush will likely have retired to clear brush on his ranch in Crawford, regardless of the outcome of this election, and it will be somebody else's problem.
My cousin, a stockbroker in Philadelphia, claims that the steady devaluation of the dollar is an intentional strategy by the U.S. government to make American exports cheaper.
Entirely possible I suppose, but OTOH the dollar became incredibly strong during the 1990s, so at what point do we make the distinction between sensible corrective measures and conspiracy theories?
Giles,
Art Metz beat me to it. Dang.
Although the way I'd spin it is that the UK is a hell of a lot closer to other countries that it would be fun to visit than we are.
Art you've totally missed the point – that’s why people in Britain take more holidays - because its easier. But no matter how far you travel a domestic holiday and an international holiday are still economically different things. Some one from Dover taking a holiday in Calais travels 10 miles but has to convert money at the prevailing exchange rate - which they'll notice and care about. Someone from New York taking a holiday in Hawaii won’t, and so won’t care about the exchange rate.
The point is that the exchange rate affects most individual British consumers directly while it only affects fewer American consumers directly. This may be reflected in policy – everyone in the UK grumbles if the pound is weak while fewer Americans care if the dollar is weak – they just holiday at home till it gets better.
Interestingly this is also one of the arguments against the Euro – not only do Europeans not have control over their own monetary policy, most are no longer aware of its effect, directly since most take their holidays in Europe.
Devaluation of the dollar is a natural consequence of American's consuming more than we export. I believe it is inevitable as long we want to have free trade. If we want to maintain a strong currency without selling assets or creating investments for foreigners we probably would have to resort to measures that would reduce consumption of goods principally sourced from overseas, or we would have to come up with novel and compelling products that would sell overseas. This would involve targeted consumption taxes on variety of goods like oil, clothing and cars. Reduced consumption would require reduced foreign funding of the trade deficit, which currently is funded via investment in the government bonds. During the 90s the trade deficit was funded via investment in the ballooning stock market, which indirectly funded government operations through capital gains taxes and investment dollars flowing through the economy and being taxed at various operations. Of course since most of the stock market investments that were made were based on poor business cases, the market collapsed. This took away a considerable portion of the tax base and is a signficant reason, though of course not the only reason, why we are running federal budget deficits. A consumption tax would replace the funds that were coming from foreign sources to fund the trade deficit via the budget deficit. But unlike the foreign money coming being invested in bonds, the tax income won't involve an increase governmental obligations. The problem with either devaluation of the currency or consumption taxes is that they increase the cost of goods to the consumer, which brings up the political bogeyman of inflation. But I believe some level of price increases is going to have be tolerated.
A lower dollar would help US exporters for sure. I import American beer to Taiwan, and the Euro beers have to keep raising their prices due to the expensive Euro (and also freight rates.)
My beer looks cheaper and cheaper comparatively.
Giles,
Apparently I did miss the point. I thought you were comparing foreign travel to foreign travel, not holidays to holidays. I certainly did not think we were discussing total numbers of days off.
In fact, now that I re-read your original post, I'm even more confused. You wrote: "at least 2 foreign holidays a year are de rigueur... " Brits take two foreign holidays a year? You mean they get paid vacations on the 4th of July and Bastille Day?
If you didn't mean "foreign travel", and you didn't mean "foreign holidays", then what DID you mean when you included the word "foreign"?
Art
Holiday = vacation, in Giles' posts, I believe...
What gets me, personally, is the quantity of talk about the price of oil which fails to state "But on the other hand, the US dollar is falling against practically every world currency..." And it's not being left out because this is common knowledge.
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