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Weekly Roundup: You Took A Paycut This Week (So Did I)

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You know how everyone in the stock market was ecstatic when the Fed cut interest rates by half a percent? Well, one of the results of that was the fall in the value of the dollar against other currencies; which meant everyone who is paid in US dollars took a pay cut this week. Remember when people would joke that your dollar was worth more in Canada because of the exchange rate? Right now the two are dead even… who’s laughing now? As RFK once said… “Like it or not, we live in interesting times…”

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3 Responses to “Weekly Roundup: You Took A Paycut This Week (So Did I)”

  1. Kevin says:

    The value of the dollar really only matters if we buy things that are imported to us. Prices may rise if manufacturers in China start to feel the burn from the devaluing of the dollar. For things that are produced in America it has no effect.

    If I am a farmer that puts my goods at a farmers market then I will continue to sell my broccoli for $1.00 / lb. I get my manure from the ranch down the road, I get my water from the clouds, and I get the light from sunshine. The only thing I had to pay for was the manure and that was made in America so it is bought with American dollars.

    Now if I drive to the farmer’s market then I will most likely buy gasoline refined from foreign oil. This would explain why the price of oil is so high right now. It takes more dollars to buy a barrel of oil since the dollar has devalued.

    The effect this will have is that it will reduce our deficit since we are a debtor nation, our debt just got cheaper. I already said it will be less profitable for imports and if manufacturers raise prices then it will be cheaper to produce goods in America. It also would be cheaper for foreign countries to buy goods exported from America.

    The devaluing of the dollar is not necessarily a bad thing. Our currency has been way overvalued due to the poor administration of it in the 1990s. A strong dollar is indicated by the mass of countries that wanted to sell things to Americans. A devaluing dollar will bring a mass of countries buying things from Americans.

  2. dong says:

    Given the global nature of the economy, we all buy stuff that’s imported to us in some form. It may not be directly manafactuted in another country, but the raw materials are very likely imported. It’s not just the gasoline. But even at farmers market you are paying not only for the good being sold there, but the cost of to produce those good. Does the farmer use foreign manufactured equipment? Komatstu of Japan is one the big manufacturers. We as American’s will be all impacted by overall higher prices of goods resulting from the lower price of the dollar.

    I would hardly argue that the dollar has been way overvalued in the last couple years. We are trading at par with the Canadian dollar. The Euro has been much higher than the U.S. dollar for a number of years. The fact that other countries want to sell us things is not just reflection of the the “strong” dollar but rather a reflection of the. The dollar was stronger in the late nineties, yet the trade deficit was much lower. I like Warren Buffet believe the root cause of the trade deficit is the low savings rate. While a lower exchange rate will temporarily increase exports, the root causes need to be fixed if we are to sustain any kind of improvement of trade balance.

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