Would more jobs make the dollar rise in value?

[Katrina]

If we increased the number of jobs available in this country would that have any direct correlation to an increase in the value of the American dollar?

[Rondaben]

Not a direct correlation. The value of the dollar is much more subject to the economic policy of the government and the Federal Reserve. This is for two reasons:

1. The Federal Reserve is responsible for controlling the number of dollars in the economic system. Lowering interest rates or direct lending to banks and brokerage houses increases the number of dollars in the system. Its simple supply and demand--more dollars means that each one is worth less.

2. The Government deficit and total indebtedness has a negative effect on the value of the dollar. There is no underlying value tied to gold or silver (the removal of the gold standard completely occured in 1972 I believe). This means that it is base on the "good faith and credit" of the government, that is, the governments ability to tax enough revenue to pay its debts. Dollars are not actually assets, but are debts. They are a promise to trade for something of value if you present them. Currently the federal indebtedness is over 60 Trillion dollars...more than the value of everything produced in the nation by every citizen for 5 years. The american government is much like the subprime homeowner--in debt over their head with no hope of paying off the debt. That makes the holders of the debt (i.e. China and Japan) very nervous and drives the value of the dollar as an accepted currency down (increasing doubt that the dollar is worth anything other than the paper it is printed on).

[Issachar]

It would help, but with the rate at which the central bankers are crankin' out the bucks it would take an awful lot of jobs to balance it out.

One thing I keep wondering .... for example .... here in NW Ohio, job loss is incredibly high. I think that the same is true for parts of Michigan, Indiana, Pennsylvania and Wisconsin. Lot's of automotive related industry here. The average wage of auto workers is double the average of everyone else which is kind of a double whammy on the economy when they lose their jobs. But, here is what I am wondering .... the roads, at least in NW Ohio, especially in Toldeo, are dangerous to drive on. The pot holes are the worst I've seen by far since I moved here in 1968. Water mains breaking in a town somewhere is just about a weekly occurrence. Why can't all of us displaced workers (I'm one of them) be put to work repairing infrastructure? Now where would the money come from? Well, what cost's more, higher taxes or broken infratstructure? Since the fed wants to insist on making so much money out of thin air, why not just make us some to pay people to repair infrastructure and then the money gets spent and makes it's way through the economy? That borders on Keynesian economics which I detest, but hey, when the free market isn't working anyway for reasons that won't be fixed, may as well put us that have no work, to work doing something that must be done ..... and I do mean must. Roads really are falling apart.

Issachar

[Katrina]

Rondaben,

Would a higher US trade deficit drive the value of the dollar down?

[Katrina]

Issachar,

I agree wholeheartedly on the road repair issue. I live in central Nebraska and this is what I have to contend with; on a certain stretch of roads there are innumerable pot holes...can't drive on one side of the road or the other. Once every two weeks or so, repair crew dump oily gravel (or some such) into them. This is seldom good enough to last from morning to evening. In otherwords - holes filled in the morning are already emptied out by evening. For the life of me I can't understand this exercise in futility. Nothing is gained. How can it be more cost saving to pay those men to repeat this fruitless step over and over, rather than just to do it right the first time?

[Issachar]

(the removal of the gold standard completely occured in 1972 I believe). Close enough. Technically August 15, 1971 ... thank you Mr. Nixon.

Issachar

[I'm all 67X]

It would help, but with the rate at which the central bankers are crankin' out the bucks it would take an awful lot of jobs to balance it out.

One thing I keep wondering .... for example .... here in NW Ohio, job loss is incredibly high. I think that the same is true for parts of Michigan, Indiana, Pennsylvania and Wisconsin. Lot's of automotive related industry here. The average wage of auto workers is double the average of everyone else which is kind of a double whammy on the economy when they lose their jobs. But, here is what I am wondering .... the roads, at least in NW Ohio, especially in Toldeo, are dangerous to drive on. The pot holes are the worst I've seen by far since I moved here in 1968. Water mains breaking in a town somewhere is just about a weekly occurrence. Why can't all of us displaced workers (I'm one of them) be put to work repairing infrastructure? Now where would the money come from? Well, what cost's more, higher taxes or broken infratstructure? Since the fed wants to insist on making so much money out of thin air, why not just make us some to pay people to repair infrastructure and then the money gets spent and makes it's way through the economy? That borders on Keynesian economics which I detest, but hey, when the free market isn't working anyway for reasons that won't be fixed, may as well put us that have no work, to work doing something that must be done ..... and I do mean must. Roads really are falling apart.

Issachar

Yep- nice thought. Everyday more bad news emanates from the rust belt. I'd fix roads and such...

[Rondaben]

Rondaben,

Would a higher US trade deficit drive the value of the dollar down?

Kind of. The trade deficit exists basically because the dollar has been too strong relative to the underlying basics. This has been mostly because of Chinese policy of keeping their currency comparatively cheap. It makes it much cheaper to manufacture our "stuff" overseas. They take the excess dollars that we send to pay for the things that are "made in China" and buy the debt of the government in the form of treasuries. This supports our dollar (once again, the supply/demand equation at work--China has demand for the debt of the US and keeps the price--i.e. the currency--high).

Part of the reason the dollar is being led lower now is that we are trying to "pull a China" and let our currency fall. This would result in more manufacturing here as it would become cheaper than in say, Europe. Europe is not happy with this situation as their interest rates are comparatively higher than ours as is their currency. The same goes for china--their competitive advantage is gone and inflation will begin to spiral out of control there. The idea is that a lower dollar results in an increase in exports.

Today's GDP report kind of reflects this process and gives a heads up as to the next shoe to drop. GDP is calculated like this:

GDP = consumption + gross investment + government spending + (exports-imports). It can be shortened to read GDP = C+GI+GS+(E-I) for this purpose.

Consumption (C) is bad now. People are consuming less because they don't have as much discretionary cash because of high energy/food prices and their overall indebtedess. Bad news. I believe that the reasons that this may have been positive this quarter were because of increasing inventory--that is carried as an asset but likely increased because demand is falling off.

Investment (GI) means the purchase of goods like software, cars, computers. This is from a business and personal perspective. Businesses are cutting back now because of the feeling of recession and a squeezed consumer. Same for personal investment. Likewise, bad news.

Government spending (GS) is, however, soaring. The government is hiring new people, spending more on war materials and purchasing new equipment. This is a net positive for the economy, but represents a long term negative to the dollar because it is done on credit.

That leaves us with the trade balance. Though imports are improving we still have a massive trade imbalance. Again, a net negative.

As you can see, without government spending and decreasing the value of the dollar to increase exports and lower imports we are in a world of hurt. Thats another reason why you should expect to see new wars to boost government spending and the dollar to continue to slide (hopefully in an orderly manner, not due to a collapse).

[Rondaben]

Close enough. Technically August 15, 1971 ... thank you Mr. Nixon.

Issachar

Hehe..that explains it. I wasn't born until Feb of 1972 ;)

[Chariots]

Since the fed wants to insist on making so much money out of thin air, why not just make us some to pay people to repair infrastructure and then the money gets spent and makes it's way through the economy? That borders on Keynesian economics which I detest, but hey, when the free market isn't working anyway for reasons that won't be fixed, may as well put us that have no work, to work doing something that must be done ..... and I do mean must. Roads really are falling apart.

Issachar

Right now it seems the economy is struggling in stagflation (Prices of commodities going up-inflation, and serious loss of jobs-deflation) Until one of these two wins we can't gauge the direction, speed, or intensity of the decline.

If Inflation wins and hyperinflation takes over there has to be a way for the average man to see his wages double and triple to keep up. Even if there were work projects taking place the rate of cash flowing into society has to exponentially increase and I currently don't see the mechanisim for this.

Deflationary conditions mean less jobs, less retail sales, more trimming of the family budget with basic needs being met first. Currently that seems to be the circumstance. I understand and believe in the Government's money devaluation direction. But, I have yet to see lliquidity, pouring into the average families budget. These rebate/stimulus checks may be the new mechanism for cash injections but $600 per family will not stem the deflationary pressures. Something major has to happen in my humble opinion that will cause a massive development of jobs, cash injection, and commerce. This was accomplished in WW2 when the ladies went to work and the car manufacturers built tanks, munitions, and aircraft.

With job cuts in the news and a general corporate slowdown it seems the deflationary cycle is winning.

Once again I ask everyone the question, "If Helicopter Ben is going to dump the money out of the sky, where is he going to dump it? We need to position ourselves correctly. If the government starts an infrastructure repair program and wages are comparable to autoworkers and anyone who wants to work can get on then maybe we'll see hyperinflation. I just haven't seen their endgame yet? Maybe someone else has.

In regards to potholes. A way we get the politicians to fix them in Southern Missouri is take a potted tree (decorative like Fichus Tree) set it in the crater and take pictures for the local paper. The politicians don't like trees growing in the middle of their roads. :heh