Active Management
Warren proposes “actively managing our currency value” to promote exports.
The left-wing Economic Policy Institute embraced the idea in this NYT Op-Ed: Warren’s Radical Plan to Fix the Dollar.
Ms. Warren and Donald Trump agree on at least one thing: America’s currency problems are hurting workers.
Overseas currency manipulation by central governments made American exports more expensive all over the world. And it made products manufactured in China and other countries cheaper in comparison. It’s the primary reason America’s trade deficit soared over the last 20 years, wiping out almost five million manufacturing jobs, roughly 90,000 factories and the livelihood of thousands of the nation’s farmers.
Revaluing the dollar could create two million to five million good-paying jobs, according to research by my organization, the Economic Policy Institute. And that could set off a much-needed economic revival.
What is standing in the way of such a change? Over the past decade, currency manipulation has become a bipartisan concern. In a 2008 campaign appearance, Barack Obama announced that, if China kept “manipulating” its currency, the United States would “start shutting off” market access. Similarly, Donald Trump promised in 2015 to declare Beijing a currency manipulator on Day 1 of his presidency. Neither one followed through, however, and meaningful action stalled in Washington.
Several economists have estimated that the dollar must fall by roughly 27 percent in order to rebalance trade flows in three to five years.
Revaluation Options
EPI senior economic Robert E. Scott discusses options to implement Warren’s radical “active management” idea.
- Federal intervention to buy foreign currency assets
- Impose a withholding tax on the profits and dividends earned by foreign investors, both public and private.
- Citing Nixon in 1971, the executive branch could negotiate directly with its trading partners to realign the dollar against competing currencies, a precedent set by previous Republican administrations.
- President Richard Nixon imposed a 10 percent import surcharge that coerced allies into raising the value of their currencies.
- Tariff threats
Scott concludes ” Whatever the approach — whether it’s Ms. Warren’s plan, or negotiation compelled by broader tariff threats — an overvalued dollar is now the primary drag on America’s global competitiveness. This currency problem has been ignored for too long, and it’s a growing problem for America’s workers and domestic industries. Wall Street’s self-interest should not be allowed to stand in the way of finally fixing it.”
Merger of Trump and Warren
Thus folks, we have the merger of currency ideas of of Elizabeth Warren and Donald Trump.
The result of a forced 27% decline in the dollar would be import prices rising as much as 27%. The average person on fixed income would not exactly be pleased with the benefits.
Benefits – None
What benefits are we discussing? None.
In contrast to the potty notion that these radical moves would create 5 million jobs, I am wondering how many jobs would be lost.
The disruption in supply chains alone is guaranteed to kill millions of jobs but the numbers are hard to quantify. It is clear that broader tariff threats have had a negative benefit.
Manufacturing jobs will not come back. They are lost and gone forever thanks to productivity improvements. It takes fewer and fewer workers each year to produce anything and everything from cars to shoes to underwear.
To gain a thousand or so (use your own number) underwear manufacturing jobs, 327 million Americans would have to pay 30% more.
Given that more spent on underwear means less spent on something else, how does this make sense?
Intervention
Warren, Trump, and the EPI are all screaming for intervention to counteract China’s currency pegs.
Yes, China has currency pegs, but the US, EU, and Japan manipulate currencies indirectly via interest rate and QE policies.
Citing China for manipulation is another one of these pot calling the kettle black situations.
Bubbles
Rate cuts weaken currencies.
Unwarranted rate cuts create bubbles. We are in a huge bubble now. That fact has not occurred to Trump, Warren, or the EPI.
Dollar Overvalued?
It is questionable to claim the dollar is overvalued.
European and Chinese banks are in miserable shape.The Eurozone might break up, starting with Italy. What would the Euro be worth should such an event take place?
China regularly needs intervention, not to lower the yuan as the article claims, but to prop it up, to stop capital flight.
If China floated the yuan, it very well could crash.
Standards of Living
If China is “dumping” goods below cost, it is to the advantage of the US not China.
Standards of living increase when the cost of goods declines.
That is the final bottom line in this mess.
It is always a benefit for the consumer to get more for their money than less.
Sadly, Warren, Trump, and the EPI all want the same fool thing: Higher inflation and a weaker, less for your money, dollar.
Mike “Mish” Shedlock
I think Russia is heading the right direction with what’s looking like gold backed crypto
I would gladly pay 30% more if the stuff lasted twice as long (as it used to when it was made in USA).
“Elizabeth Warren in Bed With Trump…..”
Duh!
It’s one big swamp, and they are all in it.
China has a big trade surplus with the US, but not with the world. They have an overall current account deficit. In theory, they shouldn’t have to intervene to keep their currency low.
And their value of US treasuries is not growing
They’ve devalued their currency over the past few decades, but I don’t think they’re still doing it.
One problem with the EPI’s ideas stood out to me: they claim their plan would create 2-5 million new jobs in the US. Apparently they are unaware that the US currently has more job vacancies than it has unemployed people. Also, the Luddites worried about technology destroying jobs seem completely unaware that despite technological advances we have a historically low unemployment rate now.
I defy anyone to show me anytime in history where allowing politicians free access to the currency printing press turned out well for the people. Picture a hungry three year old alone in a room with a full cookie jar.
I wish that they would be more specific about which industries that they want back. It would make it easier to get one’s head around how possible it would be.
Show me one single one of these clowns capable of anything even resembling industriousness……… None of these dunces differ at all from members of the “Labor” movement; not one of whom has any intention of doing labor. Just of “organizing,” and leeching off of, those who do.
It’s time we went back to a gold standard – that way everyone’s competitiveness can be measured by the same yardstick.
Not just “competitiveness.” But rather all valuation.
Of course that will lead to the value of banksters, idle “asset owners,” politicians and other abject expendables being measured more accurately as well…… Which is why it ain’t happening. At least not without some serious toughening up of the indoctrinated drones designated as patsies in the theft-by-financialization rackets which is all that is left of the West today.
Inflation is one way to bring the minimum wage down to the value of unskilled labor.
…..and to transfer the delta to deadweight bankster trash and the leeches orbiting them.
There is no exorbitant profit in paying a man what he is worth.
This became an issue at the beginning of 2018. A huge danger exists when we promote currencies to play an even larger role in trade wars. The dollars recent tumble has moved far past where many of us predicted, of course, much of this has to do with President Trumps rather unorthodox take on “Making America Great Again.”
This issue of a weaker dollar was spurred on when U.S. Treasury Secretary Steven Mnuchin told reporters at the World Economic Forum in Davos that he endorsed the dollar’s decline as a benefit to the U.S. economy.”
We cannot, of course, underestimate the important role currency valuations play in the global economy. The article below, written last year, cautions about the danger of promoting currencies role in managing trade.
Can the dollar get any weaker?LOL,deficits tracking about a quarter trillion a month,sure a lot of that is hidden off balance sheet using scam accounting and massive check kiting,but it gets better……by next year we’ll see $4-500 billion dollar deficits,and still even better……one trillion dollar MONTHLY DEFICITS…..Sooooooo which is weaker?dollar,bolivar…..too close to call!
Mish there is so much wrong with this statement. “Manufacturing jobs will not come back. They are lost and gone forever thanks to productivity improvements” The only reason for offshore mfg is cheap labor and far less regulation. Paying 30% more $7 dollar underwear that costs .25¢ to manufacture is called greed. Horrible trade policy’s going on.
A cheap dollar would reduce the trade deficit? Says who? Many years ago, I questioned why a major printer bought only German “Mann” presses. Nobody else made presses of that quality or size. One benefit of cheap dollars might be shutting down military bases across the globe.
God forbid we would be ALLOWED to have market prices.
The only thing I bemoan the dollar buying too much of is politicians.
FromBrussels, are you really from Brussels? Where? If not, why the name?
Just curious
Yes Mish, I am belgian but rather from Leuven at a 25 kilometer from the capital….I ve been using this name for years now, The Guardian cut me off though because of my anti EU stance and for being too pro Russia…..Glad I discovered your blog on M.Keyzer, thanks.
YES, all countries want to debase their currency, a consequence of a rotten to the bone, debt ridden financial system within the sick context of unsustainable globalisation madness….
If companies borrow unhedged dollars and cannot pay them back, they go bankrupt.
Not a consumer problem, It is a lender issue, typically not even a US bank but it could be. Most of that has already taken place on the rise in the dollar from 70 to over 100.
You obviously don’t think the impact of a higher dollar on foreign dollar-based debts is a bigger problem. Why?
yes they will. I mentioned that
In fact, I thought it best to not even talk about it. I thought I removed that paragraph
“Imports come via ships to the coast. The items have to be unloaded then delivered to their final destination by trunk or rail.
How many handling jobs do we lose if the manufacturing returns?”
I have been reading lately about apparent plans to automate the port of Los Angeles, which may make that a moot point. They will be gone either way.