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Thursday, September 27, 2007

Robert Reich: Who Gets Hurt When the Dollar Slides

Robert Reich says the costs and benefits of a fall in the dollar aren't distributed equally:

Who Gets Hurt When the Dollar Slides, by Robert Reich: The dollar is now at a record low against the Euro, ... down so low it’s about equal to a Canadian dollar. What difference does all this make? Roman holidays may be more costly, but how many of us are going to Rome? Canada is pricier but ... so what?

The biggest burden isn’t on American tourists. It’s on American consumers. Put simply: When the dollar drops, imports cost more. Lumber, plywood, and natural gas from Canada. ... Machine tools from Italy. When Middle-East and Russian oil is priced in euros rather than dollars – which it surely will be as the dollar continues to slide – our energy bills will be far higher. When China seriously revalues – which it has to do as the dollar drops – every big-box retailer in America will be charging far more.

And plenty of American producers who had kept their prices down for fear of foreign competition, won’t any longer. As imports cost more, there’s less to fear. The real worry isn’t inflation, as Wall Street thinks. It’s our pocketbooks. The bitter truth is that even as American exports do better when the dollar drops, most Americans get poorer.

Maybe we should get poorer. After all, the dollar’s tanking because we’ve been living beyond our means – borrowing some $2 billion a day from the rest of the world...

But not all of us will get our comeuppance. Americans big enough to be able to shift their dollars into other currencies are doing just fine. That includes Wall Street investment houses, corporations with lots of cash, and the very rich.

So who gets hurt as the dollar slides? It won’t be Warren Buffet, who’s already converted more than 20 billion bucks into other currencies. It will be those of us who can’t hedge against the fall, and whose dollars are already stretched to the limit.

    Posted by on Thursday, September 27, 2007 at 01:35 AM in Economics, Income Distribution, International Finance, International Trade | Permalink  TrackBack (0)  Comments (62)


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