Frank, in a comment on my previous post, Doubling Down on Exports, asks an excellent question: “is there any way to really achieve Obama’s goals of doubling exports other than a massive devaluation of the dollar?” He anticipated my plan to address the currency issue in more detail in another post, mainly this one.
As I noted in my response to Frank, Obama has specifically mentioned the currency issue in relation to his plan to increase U.S. exports. Earlier this week Obama said, “one of the challenges that we’ve got to address internationally is currency rates and how they match up.” Lots of people are complaining about China keeping the Yuan artificially low. But, we should remember that lots of countries over the last 30 years have been doing the same thing. As if Toyota doesn’t have enough problems, they and other Japanese exporters are dealing with a stronger Japanese currency. Currently, the Yen is the “strongest” currency in the world, rising strongly against the dollar this year. In the past when the Yen has risen, the Japanese government has taken action to devalue it. They may try to do so again now (although they are increasingly constrained by huge debt problems). So have many other countries that are trying to develop their economies through exports.
Now the U.S. is also looking to grow our economy the new fashioned way, by exporting. Sounds like a good idea but it will be interesting to watch this from a currency perspective which will particularly affect our trade-dependent region. Over the last 30 years, the world has been playing a huge game of currency chicken.
Countries manipulate their currencies so as to make it easier to export to the consumer of first, mid and last resort—your lonely over burdened, debt-ridden American. The financial crisis brought all this to a temporary halt. Lots of folks, including your humble correspondent, assumed the financial crisis would bring about a great rebalancing. Countries in Asia would increase domestic demand, the United States would export more and all would smooth to a new and lasting recovery.
But there are many signs we are trying to re-create the world of 18 months ago. There’s an old Talking Heads song called “Once in a Lifetime,” which is how many think of this financial crisis. But I’m reminded of a line in the song, “Same as it ever was” which in the video, the lead singer, David Byrne, repeats as he continues to slap himself in the forehead.
All that being said, there are many other external forces driving currency issues. In Europe, Greece is having a huge fiscal crisis. The big debate is whether the EU will bail them out. And if they do, or if they don’t, what does that mean for other European problem spots like Spain, Ireland and Portugal. Parts of Europe these days resembles the four guys in Vegas after the bachelor party in the movie The Hangover. Their heads hurt, furniture is broken and a tiger lurks in the bathroom. Unfortunately, the European situation isn’t likely to provide nearly as many laughs. But what it has done is cause the dollar to gain recently against the Euro.
In other words, this whole currency situation is complicated. And, bringing it all back around to our little neck of the woods, as I’ve said many times over the years, for the Puget Sound area we need to keep as close an eye on Shanghai, Athens and Tokyo as we do on New York and Washington, D.C. Our internationally-trade dependent economy requires it. But, with the National Export Initiative, D.C. may be keeping a closer eye on us, or at least our exporting prowess. Whether our currency is devalued or not, there are steps we can take to help our exporters. Let’s get started.