The chief editor of American Forbes spoke about the dangers threatening the US economy
Two things threaten the recovering US economy: a weak dollar and trade protectionism. Politicians often fantasize about that and about the other — it always brings very deplorable results and turns out to be terrible consequences in politics. However, some in the administration of Donald Trump flirt, playing with fire in the end.
In developed countries there is no weak currency. Nevertheless, United States Treasury Secretary Stephen Mnuchin bluntly stated with obvious ignorance: the dollar must be weak. Fortunately, the president immediately replied to him. But the mere fact that Mnuchin and his department go to undermine the value of the American currency is very alarming. The Treasury Secretary was seduced into a sweet lie saying that with a weak dollar it would be possible to sell more American products abroad and thereby strengthen the US economy. Such false and harmful ideas obviously mean that the poor fellow has completely forgotten how things are in the real world.
There is an indisputable fact: no country in the world has achieved economic power and prosperity through the depreciation of currency. Never. Suffice it to recall at least Brazil, Argentina and Zimbabwe. What happened to the Roman Empire when its own Mnuchin devalued the currency? The US Treasury Department needs to refresh it in memory, remember what it was before.
In the summer of 1971, US President Richard Nixon was very worried that after the crisis of 1969–1970, the country’s economy did not recover too quickly and that such rates could threaten Nixon’s victory in the 1972 elections. Moreover, the world then used the Bretton Woods gold exchange system, and the reserves of the precious metal from the United States dried up. It was a wake-up call for financial markets. Trying to spur economic growth, the Federal Reserve was releasing too many dollars. As a result, which is quite logical, other states began to get rid of losing dollars and bought American gold on them.
Unfortuately, Nixon was misled by Treasury Secretary John Connally, advising him to «close the golden window.» Thus, the gold standard system was completely collapsed, and the dollar began to lose value more than ever. It was originally intended that such a situation would create a trade surplus, and therefore prosperity, thanks to which the current president would be re-elected. Nixon really went for a second term, but he remembered only by long lines at gas stations, inflation and stagnation of the economy. The country was experiencing one of the deepest crises since the Great Depression, and as a result, Nixon was forced to resign. Jimmy Carter had similar views on economic regulation. In general, neither he nor Nixon economically showed any special talents.
In 1987, Treasury Secretary James Baker promoted the idea of a weak dollar to sell more American goods abroad and “fill the trade deficit.” In October of the same year, he proposed to Germany: «Either increase the inflation rate of the German mark, or we will lower the value of the dollar.» As a result, he promised to “lower the dollar”, and together with the protectionist measures of the Congress, which could lead to a trade war, his activities provoked a monstrous collapse of the securities market. Fortunately, the Reagan administration thought better of it, and subsequently the financial markets were able to recover.
Unfortunately, in the early 2000s, the United States started on the old. Finance ministers under George W. Bush believed that the slow depreciation of the dollar would stimulate economic growth. The weakening of the dollar, as has always happened, led to a boom in the real estate and raw materials market: if the currency is unstable, market participants prefer to invest in physical assets. And the outcome of this is well known to us. However, Mnuchin, the current Minister of Finance, apparently did not learn a history lesson.
Neither Nixon, nor Connally, nor Mnuchin did not understand that money is not identical with wealth. Money is only a tool for measuring value, just as a clock measures time, and a scale on a scale is a mass. It would be very difficult even to cook if the standards for measuring cups and spoons changed every day. The same with money: high volatility makes trading and investment a more risky business, and economic development because of this slows down. Money has no value of its own. This is just a system based on trust. In a sense, money is like a ticket to a concert. The ticket itself is useless, but it gives the right to receive real services.
The depreciation of the dollar can be compared with how it hangs in stores: you pay per kilogram of cheese, and you get 900 grams. In the same way, currency depreciation is felt in more complex supply chains, both in America and around the world. For example, you can pay $ 15 for a product that should cost $ 10. Companies need to allocate intellectual and material resources in order to understand how to insure currencies from exchange rate fluctuations, the main threat to economic growth.