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From: dlo@drutx.UUCP (OlsonDL)
Newsgroups: net.politics
Subject: Re: The dollar and the trade deficit
Message-ID: <445@drutx.UUCP>
Date: Mon, 4-Nov-85 15:07:08 EST
Article-I.D.: drutx.445
Posted: Mon Nov  4 15:07:08 1985
Date-Received: Tue, 5-Nov-85 17:49:21 EST
Organization: AT&T Information Systems Laboratories, Denver
Lines: 55

[]

From: franka@mmintl.UUCP (Frank Adams)
>In article <368@drutx.UUCP> dlo@drutx.UUCP (OlsonDL) writes:
>>There has been a lot of political posturing the last few years or so
>>concerning the so called "over valued" American dollar.  Supposedly
>>this is causing problems with trade.  I realize that the steel, auto,
>>textile and other industries are hurting.  However, to say that the
>>dollar has to be devalued to fix these problems is a specious argument.
......
>>will be unaffected.  After all, the dollar that purchases a Toyota is no
>>different than the dollar that purchases a Chevrolet.  If the dollar is
>>devalued, it will make the Toyota proportionally more expensive, but it
>>will also make the Chevy *and everything else* that the dollar purchases
>>proportionally more expensive.  Therefore, a devalued dollar means that
>>everybody who uses that dollar, loses.

>No.  The reason people say the dollar is overvalued is precisely because
>the ratio of the prices of goods in the U.S. and in other countries does
>not match the exchange rates.  Devaluing the dollar means changing the
>exchange rates, not changing its value against everything.
>
>Now the Chevy is likely to get more expensive after a devaluation, but by
>less than the Toyota.  There are two reasons for this.  One is that some of
>the parts in the Chevy are imported, thus GM's costs will be higher.  The
>other is that with importers being less competitive on price, GM can increase
>its price and still sell its cars.  This latter effect is likely to small in
>this case, since the importers now have very large profit margins, so will
>likely accept lower profits instead of raising their prices.

Not true.  Let's apply this to a different set of measurements.  Length.
Suppose it was decided that the inch relative to the other length
measurements was overvalued.  A decree is made that henceforth the inch
will be devalued to 15 inches to the foot.  That means that the rate
will then also be 45 to a yard, 79200 to a mile, 0.4921 to a cm, etc.
It does not matter what standard you use; the fact remains that it now
requires *more* inches to cover *the same amount* of length than it did
before.  If you want to make more inches against some other length
measurement without devaluing the inch against itself, it is the *other*
measurements that must be adjusted.  i.e. now to make 15 inches to a
foot, the foot will have be increased by 1.25 times.  And the yard, the
meter, the micron, the light year, etc.  The inch will then still cover
the same length as it did before.

The same is true for the dollar.  If the dollar is not the desired value
against, say, the Yen, but it is desired that Japanese goods be made
more expensive without making domestic goods more expensive, it is the
Yen that must be increased in value.

>Frank Adams                           ihpn4!philabs!pwa-b!mmintl!franka

My opinions are my own, and do not necessarily reflect those of my employer.

David Olson
..!ihnp4!drutx!dlo