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PeakTrader said...

Morganovich says: "this weak dollar is hurting us more in increased energy prices etc than it's helping exporters."

It's a huge net benefit for the U.S.. Much of the oil the U.S. imports represents a shift from U.S. consumers to the U.S. government (i.e. a shift from high consumer prices to low Treasury yields), and oil exporters will need to exchange more dollars for their currencies. Also, a weaker dollar spurs U.S. exports.

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The World’s Reserve Currency
October 3, 2007

"A reserve currency is money that’s held by many countries as their foreign exchange reserves. It’s also the currency that’s typically used to price commodities, such as oil and gold, that are traded between countries.

A country whose currency is the predominant reserve currency benefits tremendously. In the case of the dollar, the U.S. benefits from the increased demand for the dollar that the reserve currency status creates.

Other countries give the U.S. valuable goods in exchange for dollars issued by the Federal Reserve. They also lend the dollars they’ve accumulated back to the U.S. at low interest rates. Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars."

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Milton Friedman:

The "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.

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Also, I may add, it seems, Friedman believed Greenspan was an excellent Fed chairman:

AN INTERVIEW WITH
MILTON FRIEDMAN
Interviewed by John B. Taylor
Stanford University
May 2, 2000

Taylor: Well, whatever the break point is, why do you think things have changed? Why, as you put it, does the Fed seem to be operating the monetary-policy thermostatic regulator so much better now? What do you think the reason is?

Friedman: I’m baffled. I find it hard to believe. They haven’t learned anything they didn’t know before. There’s no additional knowledge. Literally, I’m baffled.

Taylor: What about the idea that they have learned that inflation was really much worse than they thought in the late 1970’s, and they therefore put in place an interest-rate policy that kept inflation in check and reduced the boom/bust cycle?

Friedman: I believe that there are two different changes. One is a change in the relative value put on inflation control and economic stability and that did come in the eighties. The other is the breakdown in the relation between money and GDP. That came in the early nineties, when there was a dramatic reduction in the variability of GDP. What I’m puzzled about is whether, and if so how, they suddenly learned how to regulate the economy. Does Alan Greenspan have an insight into the movements in the economy and the shocks that other people don’t have?

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