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AP: Dollar Drop Due To US Foreign Policy

From an overjoyed Associated Press:

The buck doesn’t stop here; it just keeps falling

By TOM RAUM, Associated Press Writer

WASHINGTON – Things in the U.S. sure are tough. Brother, can you spare a euro? Brazilian Supermodel Gisele Bundchen no longer wants to be paid in dollars. Signs saying "We accept euros" are cropping up in the windows of some Manhattan retailers. A Belgium company is trying to gobble up St. Louis-based Anheuser-Busch, the nation’s largest brewer and iconic Super Bowl advertiser.

The almighty dollar is mighty no more. It has been declining steadily for six years against other major currencies, undercutting its role as the leading international banking currency. The long slide is fanning inflation at home and playing a major role in the run-up of oil and gasoline prices everywhere.

Vacationing Europeans are finding bargains in the U.S., while Americans in Paris and other world capitals are being clobbered by sky-high tabs for hotels, travel and even sidewalk cafes. Northern border-city Americans who once flocked into Canada for shopping deals are staying home; it’s the Canadians flocking here now.

Everything made in America — from goods to entire companies — is near dirt cheap to many foreigners. Meanwhile, American consumers, both those who travel and those who stay at home, are seeing big price increases in energy, food and imported goods. The dollar has lost roughly a quarter of its purchasing power against the currencies of major U.S. trading partners from its peak in 2002…

The limp greenback has had one big benefit to the U.S. economy: Since it makes American goods cheaper overseas, it has helped manufacturers who export and other U.S. based companies with international reach. Exports have been one of the few bright spots in an otherwise darkening U.S. economy…

Mark Zandi, chief economist at Moody’s Economy.com, said expanding exports due to a weak dollar are "an important source of growth, but it doesn’t add a lot to jobs, it doesn’t mean very much for the average American household. For the average American, for the average consumer, these are pretty tough times."

The loss of the dollar’s purchasing power and international respect has some experts worrying that the euro might one day replace the dollar as the so-called primary reserve currency. And that could trigger a dollar rout as foreign governments and international investors flee from U.S. Treasury bonds and other dollar-denominated investments.

Making matters worse: The gaping U.S. current-account deficit — the amount by which the value of goods, services and investments bought in the U.S. from overseas exceeds the amount the U.S. sells abroad — and the low levels of domestic savings means that foreigners must purchase more than $3 billion every business day to fund the imbalance.

Since roughly half of the nation’s nearly $10 trillion national debt is held by foreigners, mostly in Treasury bills and bonds, such a withdrawal could have enormous consequences

The impact of the falling dollar is not always visible to the average consumer. Not like the big numbers on gas pumps that give stark evidence of price levels.

But imported goods, from fuel to cars from Japanese automakers and toys from China — are getting more expensive just as U.S. wages are either stagnant or falling.

American companies suddenly look cheap to acquisition-minded foreigners, particularly those based in Europe.

Belgian-based InBev’s hostile bid for Anheuser-Busch is a recent example. It has bid $46 billion to acquire the company — a 30 percent premium above where Anheuser’s shares traded before the June 11 proposal.

A successful acquisition by InBev would put the last remaining mass-market American brewer in foreign hands. InBev is based in Belgium but run by Brazilians. Anheuser-Busch, which brews both Budweiser and Bud light, holds a 48.5 percent share of U.S. beer sales. Anheuser-Busch rejected InBev’s bid, but the Belgian brewer forged ahead, seeking to unseat Anheuser’s 13-member board and take its offer directly to shareholders.

If the takeover goes through, it might open the floodgates to other foreign takeovers of American companies…

[S]ome of the decline in the dollar’s global role "is due to the foreign policy failures of the Bush administration, not just to recent economic developments and policies," suggests Adam S. Posen, deputy director of the Peterson Institute for International Economics and a former economist at the Federal Reserve Bank of New York. In other words, some international investors unhappy with Bush’s policy on Iraq or toward other parts of the world might not wish to invest in American companies or buy U.S. bonds

Isn’t it amazing? We had to get almost to the end of the article before we got today’s lesson from the Associated Press.

The US is being punished for the war in Iraq. Which is why nobody wants to invest in the US or wants our greenbacks.

And who would know that better than the non-political Mr. Posen? Never mind the FEC’s record of his political contributions:


    05/27/2004     1000.00     24981235769
    05/27/2004     1000.00     24981235769

He is just a non-political economist.

But speaking of lies, the AP has since issued a correction. It turns out they made up the stuff about the supermodel Ms. Bundchen not wanting to be paid in dollars.

Still, it made for an eye-catching lede.

What could be more humiliating than having a supermodel reject your currency?

This article was posted by Steve on Sunday, July 6th, 2008. Comments are currently closed.

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