Welcome to Subprime Nation, dear reader.
That’s how Stephen Roach put it. The Morgan Stanley (NYSE:MS) economist is in today’s paper, explaining why the fall of the dollar is bad news. In its simplest form, a weaker dollar means it takes more dollars to buy things on the open market. This year, for example, Americans will probably buy about US$2.5 trillion worth of goods from overseas. They would get a lot more for their money if the dollar were stronger. Specifically, if the dollar were still worth what it was in 2002, they’d get 20% more. In other words, the dollar has lost 20% of its value – against most foreign currencies – in the last five years.
Against other things, also imported from overseas, the dollar has lost even more value. Zinc has gone up 60% in the last year alone. Nickel is up 125%. Over the last five years, oil has risen 158%. Wheat is 126% more expensive. And the aforementioned nickel has zoomed up 415%.
The dollar fell again yesterday – to another record low against the euro. You now have to pony up US$1.41 to buy a single euro.
Americans who think Bernanke’s easy money policy is going to save the economy need to think harder. Lower interest rates are supposed to make credit more abundant. But more credit, we argue, is just what the US economy doesn’t need.
Markets and Money