Why do people say the $US is still overvalued? How is this, in my opinion, weak US dollar helping the USA? European tourists who come to the US crow and swagger down the streets of NYC with their newfound wealth.Other than hurting European imports into the US, how and why is this hurting Europeans? I hear this weak dollar is hurting Europe.

Does the US want a strong dollar or a weak dollar? Is the US even in control of whether the dollar is strong or weak? The administration seems to say it wants a strong dollar but acts as though it wants a weak dollar. I don't know what to think.

Here's why lots of folks like a weak dollar.

Lets say last year an American Widget cost $5 to France and this year it costs $4.75. Marcel needs a new widget and he can buy the French widget for $5 or the American widget for $4.75. For several moths, patriotic Frenchmen refuse to buy American widgets. But...what the heck what's a widget? So widget imports increase, American manufacturers need to make more widgets, so they have to tool-up and finally, hire widget makers. Widget tool and tie companies have to retool and add another shift. For the French to remain competitive, they have to match the widget price.

It is not a zero-sum game. That is, the French have an opportunity to meet the lower priced widget by cutting costs, cutting profit, or innovating.

The downside appears to be an increase in prices Americans pay for imported goods. But, that makes American products more competitive locally, too. Suddenly, Chinese widgets which used to udner cut American widgets at $4.75 apeice are now the same price. American retailers, faced with comparable prices, are free to choose the product without concern for wholesale price differences. Consumers can choose whetehr to buy a local product or an import.

Oil prices, being a product of predominantly foreign origin, also go up. Environmentalists have been whining about "underpriced oil". Well, it ain't underpriced now, by golly. So when it comes to buying a car, suddenly fuel economy becomes a greater issue. Maybe that Prius ain't so bad, after all. Except for its so expensive compared to Detroit--recall that the weak dollar has hurt the import price differential for cars as well as widgets. Home-grown economy cars become cheaper, too.

etc.

Botnst

First off, I read an article that I believe that I got the link from this forum that stated that it is currently more inexpensive to purchase a German Made vehicle in the states an repatriate it to Germany due to the weak dollar. They gave examples but one that I remember that a top of the line Porsche is like 20,000 euros cheaper buying it in the states and taking it back to germany!

As for a weak dollar, Botnst basically gave you the gist of it. It is world wide competitiveness. Remember that after the Brettonwoods Conference, held in suburban Maryland in the 60´s, if I recall correctly, the IMF, International Monetary Fund, was foundad. Their original charter was set up to give short term loans to countries to maintain their currency devaluations at under 20%. At this same time the gold standard was nullified so exchange rates where bascially up in the air a little and no longer directly related to a country´s gold reserve.

Anyway, since that time, for a country to boost exports and local production, a fast way was to devalue their currency making their widgets more atractive in the global economy. Whether or not this devaluation was justified economically speaking, is totally another issue.

As for the United States and Bush at this moment, he loves a cheap dollar. (reread Bonst response) Makes US widgets a lot more atractive. To give you just a few examples of US widgets:

Motorolla vs. Nokia - Ericsson
Boing vs Airbus
Lucent/Bellsouth vs Siemens/Telefonica

As for how this hurts the Europeans, well they lose sales due to more atractive pricing from US manufacturers and service providers, both in the US and worldwide. Furthermore, with a stronger Euro against the dollar, European based corporations with US/worlwide operations now have less Euros stated in their income statement, at home in Europe, from the same level of sales in the US/worldwide in dollars. Not to mention that their sales can and most likely will decrease in Dollar terms, adding more insult to injury, because of the more atractive pricing, in comparision, from the US products even locally sold in the States.

Hope this helps somewhat in answering your question.

Iggy

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OK, so does the administration want a strong dollar or a weak dollar? They say they want a strong one. Is the administration in control or not?

I mean is the whole world upset about the uncertainty in Iraq, US corporate negligence, the bad US economy, low US interest rates etc? Is this why they don't want to buy US dollars and opt for the Euro, Sterling and CHF? Or are these all things the US concocted to create a weak dollar?

At present, the only people buying US dollars are Asians because they do NOT want a weak dollar.

OK, you've explained how a weak dollar helps/hurts, but who's in control? Why doesn't the EU do something to weaken the Euro? As I said, the only people happy with the current situation are Euro tourists on Fifth Ave, both Europeans back in Europe as well as Americans are still out of work regardless of the price of widgets. Furthermore, the cost of imported widgets hasn't gone up in the US despite the fact the US dollar has been in a fall for the last 2 years---yes, the cost of a Porsche or Mercedes in the US is cheaper than a Porsche or Mercedes in Germany, but that's because of the exchange rate; a Porsche or Mercedes still costs the same in terms of US dollars as it did a year or two ago. Why?

The good thing for us about the dollar/euro is that it American cars will be more affordable to Europeans.

I think we should sell the CTS-V over there. It couldn't hurt.

Westsidewagon, why do you say the good news is that American cars will be more affordable to Europeans? Europeans don't want American gas guzzlers that are largely unreliable. Europeans need good fuel consumption. FUEL CONSUMPTION is very important to Europeans. Anyway, the EU will just raise import duties once they become less expensive.

Well, in such a developed economy as in the States, the control is kinda spread out, I believe. Though the main characters are the Fed (Chairman) and Fiscal Policy.

Iggy

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Insanity: doing the same thing over and over again and expecting different results.

2006 - Suzuki Gran Vitara (2.0 L fully equipped) Like this car so far except for trying to put on the seatbelt.
1988 - 190e - 2.3L - 172K miles (It now belongs to the exwife)
1999 - Chevy Blazer LS Fully Equiped - killed it June 2006
2001 - Honda Civic EX - 68K miles (sold June 2004)
1963 - 220S - Dual Carb 6 cyl. (sold)
1994 - Yamaha WaveRaider (fun to ride)

when the euro 1st came out it. was worth less than 1 us dollar - and it is now 1.27!
so yes the european tourists will be here in droves this summer.
to the point though trade is what it is all about.
american exports would be attractive if it were not for the soaring cost of ocean transportation which is dealt with mostly in us dollars. the impact of the weakness of the dollar is tempered by those soaring freight costs, as in the end trade slows down, lessening the good results for the us economy due to increased export sales.

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84300DT, the Europeans who come to the US are lucky tourists simply because of the exchange rate, but believe me I've talked to many Europeans who say they don't want to come back to the US again anytime soon because security is too tight, immigration asks too many questions, etc. In addition many tourists from "good" countries require visas(Poland and Turkey come to mind) and these tourists tell me the US ain't worth the visa hassle. I was talking to friends whose parents are well-off(from Poland and Turkey), their parents had considered coming over here during the March break for a visit but change their minds because of all the visa restrictions and security, easier to travel elsewhere. I was surprised that Poles required tourist visas, they helped the Americans.

james. yes you have a point perhaps the increased hassle factor will deter some people who would otherwise like to take advantage of a favorable exchange rate. europe on the other hand will suffer a lack of american tourists.
as far as security goes, i would say i saw very tight security in germany and the uk when i was last there back in november 03. inbound travellers were being questioned especially heavily by the uk immigration inspectors.

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re Bush: He's just doing a little nonsensical political pandering. Ignore the man behind the curtain, he has no real power just a loud voice.

People hear "strong" or "weak" when describing currency and they think "good" and "bad" but it isn't necessarily the case. It can be good, it can be bad, it may matter a great deal or it may be inconsequential. It depends on what every other economic indicator and also what the consumer's attitude is.

A long way back up there I said this is not a zero sum game. What that means is if one economy expands at a faster rate than another it doesn't necessarily drag the other economy down. This is why any or all economies may expand at different rates or contract at different rates.

IN general, cheaper prices are an incentive to buy. If a country raises tariffs that artificially inflate competitive goods and services it allows the domestic manufacturers and provides to become complacent while the foreign products become increasingly efficient and/or increase in quality.

Think about the long term view of the American domestic car market vs Japan and Europe. No matter what sort of barriers Detroit and the steel industry convinced Washington to implement, it just prevented industry shake-out and corresponding modernization. Meanwhile Japan and Europe built better and better cars, though God help you if you own Renault!

Some European manufacturers are so subsidized by their governments that they have lost incentive to innovate in design or manufacturing. Why bother? The gov wont lt them fail because the gov believes they have a duty to protect the workers' jobs. This results in devolving product quality that eventually becomes infamous. Like Chrysler when Reagan (I think) protected it from bankruptcy. Anybody think Chrysler brought a quality attitude and product to Mercedes?

B

For some thought provoking reading on the Dollar vs. the Euro check out The Daily Reckoning. I don't agree with everything they say, but they are not afraid to say when the Emperor has no clothes on!

http://www.dailyreckoning.com/

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“OK, so does the administration want a strong dollar or a weak dollar? They say they want a strong one. Is the administration in control or not?”

“Weak” doesn’t sound so good to the electorate so it’s unlikely you’ll hear that – “Strong” sounds good, but anything but stable has it’s consequences. The current weakness stems from the Fed being in a box. They really can’t lower interest rates further, so instead the money supply is growing rapidly – the war certainly doesn’t help either. Takes a long time for cycles to work through the economy, but despite all the talk of deflation, this will translate to higher rates of inflation and much higher interest rates – a long time after Bush is a distant memory. Maybe 7-10yrs.
After WWII we were able to essentially fix the rates of exchange until Nixon was forced to let the dollar float – we had dramatically inflated our currency, but since Bretton Woods allowed us to re-build (invest) in everybody else’s’ new cheap factory with that cheap money – it was good. Then Nam put a little too much in the mix and we began to see commodity price inflation in the seventies. That really didn’t begin to hit hard at retail until the mid-eighties.
Just the same, history is repeating itself now – commodity prices are off the chart. Bring back Robert Rubin.
This is, as we will all come to see, is the real problem from going it alone in Iraq.

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Crash9, I think you've got it.

The only possible thing taht can save us is if Iraq quickly stabilizes after it regains its sovereignty. That would force a drop in oil prices (they will need to sell lots of oil to continue the rebuilding beyond where we provided a stop-gap) that could help the world economy tremendously.

Its a bad bet, but that's the best.

Unrelated is the very real probability of developing extremely promising prospects in Siberia. A seismic survey contact of mine says that the records he has seen are extremely promising. Other sources have favorably compared it with Alaska fields--but significantly larger. Before western companies invest billions necessary to develop the fields they will need much more reassurance that Russia is stable. Thus, development is probably a minimum of 5-15 years out.

reliable oil supplies to the Paacific Rim would have a tremendous affect on our trade with the eastern countries. Among western-style democracies, probably more favorable for the USA, Japan, Canada and Australia than for the EU.

B

Sad, sad, sad. What has this country gotten itself into. We need Mr O'neill more than ever. Maybe when I'm 35 things will be better, good enough to start a family. Right now I worry about anyone over 40, they won't have anything.