Mike the Usurper wrote:
] ] The dollar index, a measure of the dollar against a
] ] basket of currencies, extended a slide to a nine-year
] ] low.
]
] This is going to require a little explanation as to why this
] is important. A large portion of the US economy is dependant
] on imports. We'll start with cars. Currently the #1 domestic
] car manufacturer is GM followed by Ford and Toyota (yes,
] that's right, Toyota). The trick here is, no one makes a car
] anymore with all domestic parts. Toyota obviously makes a
] good number of their parts in Japan where they are brought
] over and installed in US cars, GM does similar things,
] primarily in Mexico, and Ford and Chrysler both do a good
] amount of their construction in Canada, which means the dollar
] sliding across the board will increase prices for DOMESTIC
] products. The sliding dollar will also cause increased
] pressure on import prices, so things actually made in other
] places will be more expensive as well.

Obviously you're oversimplifying for brevity, but I think that might be an error in regards to the weight of the situation. Most large corporations, particularly the automotive companies, due their own currency trading and arbitrage. So yes, almost every car on the market is composed of something north of 50% non-domestic parts (which would include Canada and Mexico), that doesn't mean that the exchange rates are toying with prices all that much. Tariffs and shipping are the usual culprits when it comes to price fluctuations with globally assembled goods, and with oil at all time highs, it's been very expensive to ship things ANYWHERE. Labor is also a big swing factor and probably has much more to do with costs going up for these types of goods. Remember, even though there is some plant in some third world country making car parts for a fraction of what it would cost in the US, there's inflation in that third world country as well, and those costs are going up appropriately.

I think the reason that our currency is falling is for two very important reasons, and THEY'RE the reasons to get concerned and worried about. One is our national debt, which is skyrocketing faster than anyone can fathom. That is putting pressure on currency because it's a direct effect of loading up on too much debt. Dollars are losing value because they will be less liquid in the future. Two is obviously our foreign policy. Foreign investors are not seeing an end to the national debt gravy train, and so they're migrating their investments to other instruments, generally out of US markets and into something else. This is making it harder to arbitrage US currency exchange, and that puts downward pressure on the dollar. The only thing I can't account for is why this slide started when we had a surplus and exports were at all time highs, but this might just be a statistical anomalie.

So let's get back to prices of goods and how this all ties together. It's not really the currency situation, although it does have an impact (particularly around sub-assembly and sub-supliers). The cost of most goods is labor and benefits, and that's what's killing domestic producers right now. GM spends $10K per YEAR per EMPLOYEE on health benefits. Just health benefits. Not 401K. Not pension. Not training and development. Just health. That ends up being somewhere between $1500 and $3000 PER CAR in retail price. That is completely unsustainable and you're already seeing the Big 3 actually hiring people to help the US reconstruct its healthcare costs.

That one cost alone is driving things like price inflation, offshoring (can't afford even minimal labor here anymore), and driving even more foreign sourcing of components. You can apply these same factors to pretty much any other goods and services in the US.

This could be setting us up for the Perfect Storm effect, with currency crashing due to debt, the debt itself, pending crisis like Medicare/Medicaid, Social Security, errosion of social services, war on terror, and the errosion of middle class opportunities in the US for building wealth and prosperity. All the indicators are pointing south right now, unless you make $200K+ a year, in which case, things are great, cuz you are making a killing in the market the last 18 months, have to pay hardly any taxes, and are benefiting from 4 more years of this same consistent dynamic.

RE: Yahoo! News - Dollar Hits New Low, Gold at 16-Yr High