Stories of Decline

Here are some bits from an article by Daniel Gross in Slate magazine talking about the right wingers who have been arguing that Obama has "debased" the currency, that his policies have weakened the US dollar:

It's an article of faith among many analysts that the U.S. dollar is in trouble. The response to the financial crisis, they say, has debased the currency. The culprits are the Federal Reserve, which slashed interest rates to zero, printed money, and vastly expanded its balance sheet, and the Obama administration, which has run up huge deficits by embracing Keynesian efforts to stimulate the economy.

As early as July 2008—months before the presidential election—McCain economic adviser Douglas Holtz-Eakin blamed the weak dollar on Obama. Here's a typical piece from Conservative Daily News arguing that the administration is weakening the dollar to boost exports. Niall Ferguson, author of this declinist, anti-Keynesian Newsweek cover story, last October said the dollar could fall another 20 percent against the euro over the next few years. John Paulson, who made billions betting against subprime mortgages, as chronicled by Gregory Zuckerman in the The Greatest Trade Ever, is bearish on the dollar too.
But like so much of what conservatives have been saying recently about the economy and economic policy, this weak-dollar argument ignores current data and recent history.

...

But have Bernanke and Obama made the dollar weaker? Has the response to the crisis, which started with the Bush administration in the summer of 2008, debased the currency? Not really. The broadest measure of the dollar's strength is the trade-weighted dollar, which measures the dollar's value against a basket of currencies of our trading partners. (Here's a helpful list of our top 10 trading partners: Canada, China, Mexico, Japan, Germany, United Kingdom, South Korea, France, Taiwan, and Brazil.) Here's a long-term chart of the trade-weighted dollar index. What it shows, first of all, is that since the onset of the crisis in earnest—which I'd date to the spring of 2008, when Bear Stearns failed—the dollar has actually gained ground against the currencies of our biggest trading partners. It spiked in reaction to the panic in the fall of 2008, as investors sought a safe haven in the dollar, then fell back in 2009 before turning up again recently. It currently sits about 7 percent higher than the low of mid-2008 and almost exactly where it did in the fall of 2007, before the troubles started. A two-year chart would thus show a currency that hasn't been debased much at all.

Go read the original article to get the links to supporting data and documents that Gross includes in his article.

I personally believe the US dollar will continue a long term slide because of the US trade deficit. You can rectify a trade balance by either becoming more inventive & productive & selling more or you let your dollar slide so that people will find what you have to offer to be bargains and will buy more. It is really pretty simple.

Obviously it feels better to have a strong dollar because that means you can buy foreign goods more cheaply. But to have a strong dollar you have to have a strong economy. I just don't see Obama making the hard decisions to rein in the rampant greed and dishonesty of Wall Street. Instead of getting the US back onto the track of building goods to create a strong economy, Obama is following the 30 year policy of "financializing" the US, turning the US into a "service economy". I see that as a mistake. I know it is hard to turn back the clock, but efforts should be made to revitalize US manufacturing.

Daniel Gross tries to set the frothing right wing media spinners right about the debased US dollar:

The charts do tell a story of long-term decline. But it didn't start in January 2009, with the inauguration of President Obama. And it didn't start in March 2008, when the Fed rushed to the aid of the financial system by guaranteeing some of Bear Stearns' assets. Look again at the long-term chart of the trade-weighted dollar. Between the peak in 2002 and the trough in 2008, the dollar lost 27 percent of its value. If you're inclined to blame the chief monetary and fiscal officers of the country—the chairman of the Fed and the president—then it sure looks like Alan Greenspan and George W. Bush debased the currency something fierce.

Yep... if the right wingers want to blame somebody, they need to blame their right wing idols -- George Bush and Alan Greenspan. These two started a long decline in their dollar with their guns & butter approach to politics (or in the case of Greenspan, his impassioned plea that Congress give a trillion dollar tax cut to the rich in order to prevent budget surpluses as far as the eye can see). Bush achieved his goal of running up big deficits to tie the hands of Democrats when they regained office. Greenspan achieved his dream of ending budget surpluses in order to 'keep the bond market alive'.