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- Xref: sparky sci.econ:7357 misc.invest:11228
- Path: sparky!uunet!littlei!carthago!chedley
- From: chedley@carthago.intel.com (CHEDLEY_AOURIRI)
- Newsgroups: sci.econ,misc.invest
- Subject: Re: need details on devaluating U.S. currency
- Message-ID: <2311@gandalf.intel.com>
- Date: 4 Sep 92 01:08:02 GMT
- References: <5esJ03Tu76p100@amdahl.uts.amdahl.com>
- Sender: news@gandalf.intel.com
- Reply-To: chedley@carthago.intel.com (CHEDLEY_AOURIRI)
- Followup-To: sci.econ
- Distribution: usa
- Organization: Intel-Corp,_Hillsboro,_Oregon
- Lines: 62
- Nntp-Posting-Host: carthago
-
- In article <5esJ03Tu76p100@amdahl.uts.amdahl.com>, fierro@uts.amdahl.com (Doug Fierro) writes:
- ...
- |>
- |> It seems to me that devaluation of the dollar doesn't affect people much
- |> if they are not buying anything outside of this country- i.e. their salary,
- |> car loan, mortgage, etc. won't appear to change much, but if they want to
- |> buy that Mercedes or French wine or round-trip ticket to Tokyo the cost
- |> will be much more than before the devaluation took place. So if this is
-
- A devaluation of the dollar does affect people even if they do'nt directly
- buy anything outside this country.
- For one thing, many goods you buy in this country are either imported
- or have some parts in them imported from other countries.
- Second, even if you buy a product 100% made in this country, devaluation
- does affect its price by making it relatively more or less attractive
- then similar products from foreign countries.
- Take cars for example. If a $ devaluation makes japanese cars more expensive,
- people will tend to turn more to american made cars. Ie the demand for
- american cars rises which tends to push their price up!!!
-
- |> true, then if other leading countries decide to devaluate their currency
- |> as well, does that defeat the purpose and can it lead to a devaluation war?
-
- Yes, devaluation wars do occur.
- However, in a fixed exchange rate system, smart central bankers can precisely
- devaluate a currency so that it keeps their exports competitive without
- triggering a retaliation (counter devaluation) from the other countries.
-
- |> I can see that devaluating one's currency makes their products more attractive
- |> to purchase by foreigners, but the trade-off is foreigners will not want
- |> to invest much in that country, and I don't believe the U.S. can afford to
- |> start discouraging foreigners from buying our debt in our current situation.
-
- Well, low interest rates discourage investors from buying US debt. Which may
- be good for the US, as it will encourage the govt to balance its budget...
-
- |> But then again, if the U.S. can cut it's debt enough by devaluating the
- |> dollar, it might be an acceptable trade-off. If this is not entirely correct
- |> let me know- details of course where I went wrong :-)
- |>
- That is correct.
- But it has some long term implications that may not be very pleasant.
- If the US tries to cut down its debt load by devaluating its currency (basically
- by printing more dollars), it will:
-
- 1- Scare off investors and govt bond holders, who will decide not to buy any
- more US govt bonds. The US treasury cannot afford that, given the huge
- amount of deficits the govt is running which necessitate loads of money
- to borrow.
-
- 2- Reignite inflation, with all its negative consequences on the economy
- in this country and all over the world.
- This is probably a political argument, as politicians may opt for this
- "solution" as the easy way out of the deficit problem.
-
- ..CHEDLEY..
- ..!{uunet|tektronix|ogicse}!littlei!chedley chedley@carthago.intel.com
- ------------------------------------------------------------------------
- Standard Disclaim: The above statements and opinions are strictly mine,
- and do not represent any company or organization's position.
- ......................................................................
-
-