The New York Times chart above shows the American dollar's relative value. As you can see, a dollar just 30 or 40 years was worth much more in the international marketplace. I am willing to bet if you asked most college graduates how much the American dollar has been devalued since 1971, almost no one would know.
I wish high schools would teach Americans basic statistics and macroeconomics, but with teachers' unions and religious fundamentalists influencing the academic curriculum and refusing to adapt to the 21st century, I don't see much change on the horizon.
Here's a basic tip: when analyzing economic data, you cannot rely on one set of numbers. For example, if someone shows you a chart of income growth rates, such data is meaningless without also evaluating inflation rates during the same time periods. More specifically, if your income rises 3% but inflation rises 4%, you are worse off than if your income rises 2% but inflation rises 1%. That's another interesting question to ask a high school senior--whether you are better off under the former or latter scenario. Again, I bet most of the high school seniors would answer incorrectly.
Showing posts with label American dollar. Show all posts
Showing posts with label American dollar. Show all posts
Thursday, September 16, 2010
Wednesday, December 10, 2008
The Poor, Poor American Dollar
I have a treat for my readers--The Atlantic's (December 2008, p. 62) interview with Gao Xiqing, who oversees and invests $200 billion of China's $2 trillion U.S. dollar holdings. This interview is one of the best ones I've ever read because of the government official's openness:
http://www.theatlantic.com/doc/200812/fallows-chinese-banker
Below are my favorite two parts from the interview, one about the American dollar, and the other about derivatives:
Everyone is saying, “Oh, look, the dollar is getting stronger!” [As it was when we spoke.] I say, that’s really temporary. It’s simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors. But after a short while, the dollar may be going down again. I’d like to bet on that!
I have been converting my dollars into Canadian dollars recently. I already have euros (FXE) and some Swiss francs (FXF). We'll see in a year whether my decision was the right one. I felt compelled to diversify my U.S. dollar holdings, because they were earning around 1% in interest, while competing currencies had much higher interest rates and the possibility of greater upside.
As for derivatives, here is what Mr. Gao had to say:
If you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullsh*t. They are crap. They serve to cheat people.
Mr. Gao explains derivatives by comparing them to multiple mirror reflections of one actual product. It's such a perfect analogy, I'm surprised no mainstream American publication has mentioned it until now.
Kudos to The Atlantic and Mr. Fallows for publishing this interview.
http://www.theatlantic.com/doc/200812/fallows-chinese-banker
Below are my favorite two parts from the interview, one about the American dollar, and the other about derivatives:
Everyone is saying, “Oh, look, the dollar is getting stronger!” [As it was when we spoke.] I say, that’s really temporary. It’s simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors. But after a short while, the dollar may be going down again. I’d like to bet on that!
I have been converting my dollars into Canadian dollars recently. I already have euros (FXE) and some Swiss francs (FXF). We'll see in a year whether my decision was the right one. I felt compelled to diversify my U.S. dollar holdings, because they were earning around 1% in interest, while competing currencies had much higher interest rates and the possibility of greater upside.
As for derivatives, here is what Mr. Gao had to say:
If you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullsh*t. They are crap. They serve to cheat people.
Mr. Gao explains derivatives by comparing them to multiple mirror reflections of one actual product. It's such a perfect analogy, I'm surprised no mainstream American publication has mentioned it until now.
Kudos to The Atlantic and Mr. Fallows for publishing this interview.
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