Democratic Underground to Canada? falling dollar woes.

Are we going to need an underground railroad to Canada for displaced US workers? Here's a source that leans that way:

"The Falling Dollar and U.S. Workers

Working Americans rarely have any reason to check the latest foreign exchange rates. Minor currency fluctuations simply don’t have a visible impact on their lives. But the decline in the value of the U.S. dollar is now so acute that the effects will soon become apparent to all U.S. wage earners and consumers.

Although the Bush administration states that it continues to support a strong dollar, it is clear from its actions that the administration is attempting to use the falling dollar to make U.S. products more competitive, close the U.S. trade deficit and stem the loss of U.S. manufacturing jobs.

But this policy is not working. The trade deficit is too large to close with moderate currency adjustments and the largest deficits are with trading partners that are not affected by the dollar’s decline. The competitiveness issues that plague U.S. manufacturers and lead to lost jobs go well beyond currency values. Employment in manufacturing is down by 584,000 jobs since November 2002 despite the dollar’s consistent decline.

The failure of the Bush policy can be seen in the most recent trade data. The U.S. trade deficit in October was the largest monthly deficit on record. Exports increased 11.3 percent for the year ending in October, while imports rose 18.5 percent. Average import volumes are more than 1.5 times larger than export volumes, so exports will have to grow at 1.5 times the pace of imports just to prevent further deterioration.

The trade balance with regions that maintain floating exchange rates, such as the European Union and Canada, has improved. But the total deficit with China and other key Asian economies has continued to worsen because these economies peg their currencies to the U.S. dollar. The Bush administration’s soft dollar policy punishes Europe and Canada and enhances U.S. competitiveness with respect to these economies, but does nothing to address the trade deficit with China and other Asian nations.

The dangers entailed in Bush’s approach are two-fold. First, the damage done to the European and Canadian economies will eventually curtail their imports from all countries, including the U.S., and undercut global economic growth. Although some U.S. exporters have benefited from the lower dollar, these benefits will be short-lived. The dollar’s fall is already choking growth in Europe; Japan’s brief recovery is clearly cooling.

Europe is feeling the sharpest pain, with the euro up 33 percent against the dollar since January 2002. European companies are suffering as the price of their exports climbs and cuts into their competitive standing in the world economy. The dollar is already below what most estimates indicate is its fair value against the euro.

The British pound is up 24 percent against the dollar and forcing the UK into larger trade deficits. Canada and Australia are also suffering.

The second danger stems from the fact that a further decline in the dollar will force the U.S. Federal Reserve to jack up interest rates to hold on to the foreign investors who are financing the U.S. deficits.

Foreign central banks are now the primary lenders for financing the U.S. deficit, with the central banks of China and Japan as the lead lenders. These liabilities are denominated primarily in dollars, so the dollar’s deep slide poses huge potential losses to the Asian economies. The only way to counteract the losses is to raise the interest rates paid.

U.S. consumers are carrying huge debt burdens and will be in a dangerous position if interest rates rise significantly. Also, higher rates will cripple industries that are highly sensitive to interest rate increases, such as the housing and auto industries. Widespread layoffs will occur.

Foreign investors are increasingly concerned about the U.S. current account deficit, which now totals $600 billion, or 5.7 percent of the Gross Domestic Product (GDP), well above the previous high of 3.5 percent in 1986. They will not continue to finance the debt if they feel that they are supporting a sinking ship. Their concerns grew in November when Congress voted to raise the federal debt limit by $800 billion, boosting total borrowing to $8.2 trillion, up from $1.4 trillion in 2000.

Bush’s pledge to make his tax cuts permanent will add $2 trillion to the debt over the next ten years. Fixing the alternative minimum tax will cost $600 billion and implementing private accounts for Social Security will add another $2 trillion.

The projected federal budget deficit is $2.7 trillion for the next ten years, which brings the grand total to $7.3 trillion in new debt over the next decade.

Although the Asian banks have propped up the dollar for the past two years, at some point they could easily decide to cut their losses and invest in euros instead.
(China indicated yesterday 1/26/05 that this was where it was heading)

Bush’s claims that the U.S. economy will simply grow out of its budget and trade deficits are unfounded. Unlike the foreign investment that flowed into the United States during the 1990s, the money provided by the Asian banks is not financing business investment and future growth. Instead, it is financing U.S. federal deficits and consumer spending.

The dollar’s decline has not alleviated job loss. Manufacturing jobs will not be secure until U.S. goods production is revitalized through a resurgence in research and development, infrastructure investment and worker retraining. The Bush administration has precluded this revitalization by cutting the budgets for programs that would boost productivity and create jobs. In addition, the administration has refused to address the national crisis in health care costs, which continues to put U.S. companies at a disadvantage.

The only meaningful solution to the U.S. budget and trade deficits is to reverse the Bush administration’s runaway spending on the military buildup and invest in the infrastructure, research, education and training programs that truly support long-term productivity and export growth."

But we all know the Bushies never reverse a policy, so...
Get that ticket to Canada while you still have a job.