I agree with Peter that speculation influences short term currency movements
but I also think that the long term trend of the dollar (on the world
market) is evident. I would suggest however, that the diving dollar is more
a consequence of collapse of US hegemony rather then a decisive indicator.
In other words, (and for lack of a better term) `confidence' in the US
collapsed a long ago (the formation of OPEC and the defeat in Vietnam?) but
the world has been "supporting" the dollar (directly, buying dollars,
indirectly, buying US assets) because it is the lynchpin of the
international system of finance and exchange. The world financial community
(consisting of both states, banks and other private and quasi-public
organizations) could not permit a "freefall" of the dollar due to the fact
that there was/is no currecny capable of fulfilling the role of, or
replacing, the dollar on the world market.
BTW, I wonder what the drop in the dollar does for the paper assets of
Japanese auto companies who invested heavily in the US.
I agree with Doug that US capitalist don't appear to be particularly
concerned about the dollars drop but is there any reason to suspect/expect
that they would. Most foreign assets have increased in dollar value and
imports may have become more expensive but my sense is that Americans still
have enough disposable income (actually credit) to absorb these price
increases. IMHO, this is the only way that we can explain the fact that,
despite the weakening of the dollar over the last 7 or 8 years, the trade
deficit has continued to increase.
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Carl H.A. Dassbach E-mail: DASSBACH@MTU.EDU
Dept. of Social Sciences Phone: (906)487-2115
Michigan Technological University Fax: (906)487-2468
Houghton, MI 49931 USA