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The only thing that has been devalued faster than our precious dollar is the perpetual slide in government credibility. Over the years we have heard countless times about the importance of a strong dollar from our leaders.
"Our administration believes in and will do everything in its power to support a strong dollar" or something like this has been spewed out by Republicans and Democrats alike, yet there is little evidence that the policies put in place over the past century have done anything of the sort. Perhaps there was one person that took the heat and did the right thing -- Paul Volcker, during the Carter administration, who had to deal with dizzying inflation.
The Bush administration touted a strong dollar every opportunity it had, but the policies put in place did the opposite. President Obama has done the same and is now visiting China and Japan to assure them of our intentions. This is nothing new, last June Reuters reported:
Treasury Secretary Timothy Geithner on Monday reaffirmed his faith in a strong dollar and reassured the Chinese government that its huge holdings of dollar-denominated assets are safe. "We believe in a strong dollar," Geithner said in a question-and-answer session after a speech to students at Peking University.
Clearly the parade of reassuring words does not sway our trading partners any more convincingly than it does us. Anybody that has been around the block more than once will listen to your words and look toward your actions. Those actions indicate that the fork tongue speaking crowd in DC wants to see the dollar fall.
Federal Reserve Chairman Ben Bernanke spoke to the Economic Club of New York Monday. He discussed the financial crises of the past year, tight credit markets and the important task of tempering peoples fears and stabilizing the markets. He touched upon the troubles looming in the commercial real estate market with $500 billion in loans set to roll-over in the coming years without the liquidity to handle the load. He commented on the reduced values hurting the economic recovery and the potential strain on regional banks.
Regarding the employment and the job market he said, "With the job market so weak, businesses have been able to find or retain all the workers they need with minimal wage increases, or even with wage cuts. Indeed, standard measures of wages show significant slowing in wage gains over the past year. Together with the reduction in hours worked, slower wage growth has led to stagnation in labor income." I truly appreciate his candor on this subject, even if no remedy was discussed except for everyone to hunker down.
A good example of where wages are going can be gleaned from this weeks Barron's Weekly (subscription required) where they recommended FedEx Corp (FDX) as good now and great later. They mention FedEx trimming its cost structure by $3 billion dollars annually, with half the savings being permanent based on a reduction in base salaries, merit pay, and 401K contributions. FDX is only one example of what is going on throughout the country.
Bernanke went on to enumerate a number of Fed policies coming down to this: we need to keep interest rates low, continue to introduce focused financial stimulus, and postpone our deficit concerns for the time being. Nothing he said seemed supportive of the dollar coming anytime soon. I think "he gets it," I just don't think much is being done about it when he states, "We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability." What strong dollar is he talking about?
There would be riots in the streets if they simply cut everyone's wages in half by edict. However, by their actions they can do exactly that. That is what is happening to make us "more competitive" by driving down our ability to purchase things on the world market and making our goods and services cheaper they improve our balance of trade. Furthermore the eventual inflation caused by our deficit spending and increase in currency supply is something DC folk hope will make the burden of our trillions in debt -- a kinder, gentler burden.
And this does work. Why does the U.S. need to pacify the Chinese, among others? That's because the $2 trillion in U.S. bonds they hold took a big haircut over the past 18 months and is worth closer to $1.6 trillion and dropping. You might be aggravated, too, if someone not so mysteriously grabbed $400 billion in broad daylight and patted you on the head and said everything was going to be all right.
The government (both parties) will keep pushing the current policies until the American worker is on par with their Chinese counterparts. Some of this will happen by the growth and strength of the Chinese economy, but a larger portion is going to be taken from American workers -- until Americans are working for Chinese wages.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
11-17-2009 @ 3:59PM
Peter Van Schaik said...
I'm sure you will get blasted by many for this article but it is the reality we are facing. The United States is not going to be allowed to continue consuming the bulk of the world's resources with such a small percentage of the world's population. The have-nots of the world want their share, understandably, and it can be done peacefully or violently but it will be done. There will be a painful period of adjustment, try paying your debt with lower wages while you maintain your current standard of living, but, if China seriously opens their markets to our goods, the transition does not have to be a disaster. If we consume less and export more we can start getting our financial mess in proper order, after all, much of the rest of the world has been doing that for years. That is a huge IF however: Whether or not it will be accomplished is still very much in doubt.
11-17-2009 @ 4:07PM
Connie said...
Actually, washington will import chinese to do these jobs!!
11-17-2009 @ 4:24PM
clikdawg said...
Well said, Mr. Liber.
If you look strictly at the effects of globalization on wages world-wide, it resembles nothing so much as an extremely huge union-busting operation -- and I use the term "union" in a very broad sense.
The success (in which, unfortunately, the seeds of its own ultimate corruption were sown) of the American labor movement increased wages and working conditions even in non-union operations: These were improved in countless cases precisely to counter the "threat" of unionization: "Okay, we'll up the ante if y'all just tell Mr. Union Organizer 'no, thanks'."
The deal the Americans were getting was the envy of the world, and therein lies the rub. Just as collective bargaining improved the working conditions even in place that didn't collectively bargain, so American-style wages (and the accompanying increase in the social stature of workers) exerted upward pressure internationally.
Bad news, for some, and the only way to scotch it is to devalue the American worker: The Third World (perhaps, perhaps not) gets a small raise at the expense of US workers, from whom it will be only to happy to inherit any sort of job at all -- the exact ethical position the classic strike-breaking "scab" (ugly word, ugly practice) faces.
And with American labor standards (and the upward pressure they exert) out of the way (as well as pesky American safety, sanitary, and quality laws) the Third World -- and post-recession Americans -- can be kept in its and their places.
Too big a lump to swallow? That's the way history, with its unflinching bird's-eye view of WHAT ACTUALLY HAPPENED as a result of any given action, will write it; just as, in the long term, it will finally get around to noting that the single most important actual result of the Civil War was the transfer millions of Southern agricultural bondage slaves into Northern factories at less than slave wages and in abominable working conditions.
And not a few of those historians will suggest that that is exactly why the Civil War was fought; a huge raid on Southern labor.
These need not be the conscious motives behind either the Civil War or the present "strike-breaking"-ish events of the present to be the actual driving forces; a large part of what people in general and movers-and-shakers in particular do is sheer, unalloyed instinct: You have the power; you crave a certain result you may not wish to consciously own up to, or find it political suicide to do so; you make certain moves and hey, presto! Millions of new cheap laborers just up from Dixie.
Or Bangladesh.
Or Main Street, U.S.A.
Food for thought, if nothing else ...
11-17-2009 @ 4:56PM
Davey Rockefeller said...
Not only will the dollar be gone but the country will be too. These phony politicians don't run things, the globalist corporate oil banksters do. David Rockefeller's CFR,Trilateral,Council of the America's, Bilderburg, etc. they decide things and call in the morons from DC and tell them how it's going to be. Get on your knees serfs, kiss the ring and pay respect to the Godfather! Bankers and corporate elitists run the show and it's all about their profits next Q! Human beings are just a cost on their balance sheets, a liablity they may decide it would be cheaper to eliminate most of the excess capacity they no longer need! Be grateful for any crumbs they toss down and loan you.
11-17-2009 @ 5:02PM
Sonny said...
Fairly accurate.......our country's economy will continue its decline untill the govt is unable to take care of non-productive people. It will be very bad, but jobs will slowly return, but at pay levels very suppressed compared to today's level. Unions if still around, will be fighting for jobs at any pay level and be glad to get them. It is a very simple scenario...............work or starve. What happened to our "prince" that promised us everything?
11-17-2009 @ 6:44PM
william lindblad said...
Good article, but it is also a #9 shot from a 12 gauge.
You are covering one hell of a lot of turf which makes composing a decent comment difficult.
Staying with the heading - I doubt it.
I do expect wages to remain static and workers being asked to do more. There will be cuts in the peripheral areas as vacations and benefits as the un-employment stats fill the working ranks with fear.
On to the Chinese.
I think that you might want to check their un-employment rate. In some of their smaller cities they had rates of 12+ going back to 2007. Most of those that went back to the provinces at the beginning of this year have yet to return to jobs from the Chinese New Year celebration.
We are their major market.
In short, if it don't fly here, it ain't gonna fly there either.
Obama is over there because we have a very mutual problem. Talk of the Yuan floating? That has been resisted for years - and now? Seems like the inscrutable oriental minds see a way to balance the financial books by making a change in value. It would be tricky, but I gotta give them credit for being sharp. As I recall they kept bank reserves up - way up.
No, I don't see any wage parity any time soon. Not in their benefit as they have a near unending pool willing to work cheap and changing that picture in any dramatic way would also put more pressure for change on the existing government. They like doing things s-l-o-w-l-y.
11-17-2009 @ 11:08PM
Beltway Greg said...
A couple of months ago at a trendy gathering of smart folks in DC I made a comment that sucked the breath out of the room. I said that the recession was over and the people who have lost jobs are really those that consume less so it doesn't really matter if we bring unemployment down to a respectable level. We gave them too much access to cash and credit and they went crazy. Stop issuing credit cards as a birth right. Make people be responsible. I have a renter for a property that I own. They have an income far in excess of what one would need to cover the rent but they are just managing to scrape by and are constantly late with the rent. Yes, they both have new cars and premium cable not to mention brand new furniture. Me, a twenty-two year old clunker and furniture that is the very anthesis of "Shabby Chic." Some people are born peasants and some manage to spend themselves into peasantry. I think it's safe to say that I'll never be a candidate for elected office. Greenspan didn't do it, you did it.