Recent weakness in the dollar is a stroke of luck for the administration, but they have also played their cards well at the international level. This could really help the Democrats in the 2010 midterm elections, but it’s quite a gamble. I discuss the details here.
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I’ve read the article and I have a few questions:
1) SJ: “Japan, France, Germany, and Italy all worry about a weak dollar. The U.S. officials, at the highest stakes poker table in the world, faced them down.”
What about China? Have they tacitly agreed to let the dollar slide? Are they gonna print RMB to keep the peg?
2) Does a weaker dollar mean that prices will go up at Wall-Mart? Won’t that hurt modest income folks?
3) SJ: “A weak dollar traditionally bothers our financial sector and they have enough political clout to bring on exchange-rate intervention.”
Can somebody explain why the financial sector traditionally favors a strong dollar?
4) SJ: “If the dollar stays weak or declines further, our car companies, machinery makers, and turbine blade manufacturers will soon be rehiring and we’ll finally get some job growth as part of our sputtering economic recovery.”
I think you have to assume that in those sectors American manufacturers don’t have Chinese competitors. Otherwise, given the low cost of Chinese labor, one would tend to think that, even with a slide of the dollar, Chinese stuff will remain cheaper.
With China buying gold–as much as the market can handle–the price of gold tells you little about inflation. Weak dollar is obviously good for a U.S. recovery, but don’t count on a lack of coordinated action from the rest of the exporting world. It’s suicide for them because they then make their own bubbles, but they don’t care.
I’d say its possible that people are tired of hearing the right wing trash Obama. The other thing is that more and more people, even some of the republicans, are starting to back the new versions of the public health option. His approval is around the 50-56% mark recently but that could go a lot lower. The weak dollar may not be all that bad actually if its temporary because it gives the economy a little bit more power in exporting. Looks like Gold is finally ready to head to outer space too…gonna be an interesting few months ahead thats for sure.