From: "Gary Britt" 

I believe for the past decade or so the most important element in the value
of the dollar versus other currencies is interest rates in the U.S., as the
UP.S. has kept interest rates extremely low while Europe and other
countries have not kept their interest rates low, has caused some movement
away from holding dollars versus holding other currencies where interest
rates are better.  Then the shifts in demand for various currencies cause
further drops in value of dollar giving more incentive for more shifts away
from the dollar.  Kind of a snow ball rolling down a hill.  I don't view
the lower dollar values as a bad thing, at least not yet, either.

Cheers

Gary

"Randall Parker"
 wrote in
message news:3ff668a8$1{at}w3.nls.net...
> Gene,
>
> The US in the early 1970s had a much smaller portion of its economic
activity
> involved in trade. A decline in the dollar couldn't cause that much
inflation. Your
> fictional recall of history as you imagine it continues to be a source of
> entertainment however.
>
> In 1973 trade was 11.7% of world GDP versus 1993 where it ws 17.1% of
world GDP. See
> the last chart on page 3 here:
>     http://www.rit.edu/~sctgse/files/econ454/lectures/ch1trade.pdf
> Look on page 4 and you will see that in 1970 that trade was only 4.4% of
US GDP. A
> big shift in the US dollar could simply not create much of a blip in US
prices
> because so little of what the US used came from abroad.
>
> As for defending Nixon as a Republican: I am critical of his economic
policies. But
> you are dreaming if you think that the devaluation of the dollar played a
big role in
> the 1970s inflation. It didn't because trade was not a major factor in the
US economy
> at that time.
>
> The essence of the Plaza Agreement was to lower the US trade deficit. It
worked:
>
> http://www.pkarchive.org/trade/ShrinkingTradeDeficit.html
> 1980 0.7 pct.
>
> 1981 0.7 pct.
>
> 1982 0.9 pct.
>
> 1983 1.5 pct.
>
> 1984 2.8 pct.
>
> 1985 2.9 pct.
>
> 1986 3.3 pct.
>
> 1987 3.4 pct.
>
> 1988 2.4 pct.
>
> 1989 2.1 pct.
>
> 1990 1.8 pct.
>
> 1991 1.2 pct.
>
> The Japanese government has been engaging in huge operations in recent
years to prop
> up the dollar against the yen. See here:
> http://www.upi.com/view.cfm?StoryID=20031204-041446-8074r
>
> Excerpt:
>
> The euro's surge, however, has nothing to do with this progress on reform.
It has to
> do with U.S. frailties, to which international investors are beginning to
open their
> eyes. The United States 4 percent plus budget deficit has helped to push
the annual
> deficit on current account (a full measure of trade, including services
and income
> payments) over the half trillion dollar mark. Consequently the United
States needs
> high capital inflows to offset this huge deficit in current payments (and
also to
> help finance the government's growing debt.)
>
> Foreign investors are growing wary. According to Dr. Rob Van de Wijngaert,
a
> strategist at ABN AMRO in Amsterdam, U.S. Treasury numbers show that
"apparently
> there is not a single institutional fund in Japan which is willing to buy
U.S.
> Treasuries and instead the Bank of Japan purchased no less that $150bn
this year"
> According to Van de Wijngaert, the latest numbers show that foreign
"demand for U.S.
> Treasuries, bonds and stocks is plummeting."
>
> And here:
> http://business-times.asia1.com.sg/story/0,4567,101487,00.html
>
> Excerpt:
>
> For example, the Bank of Japan has already spent 18 trillion yen (S$283
billion)
> slowing US dollar losses against the yen this year, and the strongest
signals on our
> charts are for further euro, Sterling pound and Australian dollar gains
versus the yen.
>
>
> Gene McAloon wrote:
>
>   > Although Reagan pulled the plug on the dollar, that had little to do
with
> > helping the trade deficit. In essence the Plaza Agreement was about
getting
> > Japan to import more US goods. It did so and that is what lowered the
trade
> > deficit, although obviously cheapening the dollar contributed to that as
well.
> >
> > Contrary to the usual Republican excuses, it was not the increases in
oil prices
> > that caused massive inflation. That didn't cause massive inflation
anywhere else
> > either. The massive inflation in the US was directly attributable to
Nixon's
> > lowering of the dollar and the increase in import prices that caused it,
> > combined with US industry's commensurate increases in its prices. Recall
Ford's
> > railing against those latter increases, but getting nowhere.
> >
> > You will have to do better than repeat tired old Republican arguments
defending
> > Nixon and Reagan's policies if you are going to have a chance of
contradicting
> > what I have said.
> >
>

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