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Saturday, November 26, 2005

GM's shutdowns abetted by Bush budgets

GM's announced shutdown of a dozen plants and layoff of tens of thousands of workers has set off intense handwringing and even more vilification of the corporate giant. Some of it is justified. Some of it is national policy. Universal health insurance would reduce stress on businesses by reducing the cost of benefit for workers, for example. More important is the value of the dollar.

"The de-industrialization of America" is a tag on the Reagan era, when half the auto industry was exported to Japan. It was not a happy time. Fingers were pointed in every direction. Councils on competitiveness were convened. Trade protection was demanded. Then, as now, the cost of the dollar was ignored because it was not understood.

When trade goods are translated through a high dollar, imports are cheaper and exports more expensive. Wal-Mart booms and Hundais rule. The dollar gets higher when the federal government does not balance its budget and has to offer a higher interest rate (price) for debt financing. It is higher, too, when other countries purposely maintain a weak currency.
Dubya's outlandish deficits are even bigger than Reagan's. Balance the budget by returning taxation to the rich. Then let's go to work on a sensible exchange rate system.

PS: Don't be surprised when the Chinese come in and buy up the neighborhood. What else are they going to do with dollars? The greenback doesn't spend good in China. We should be happy our debt isn't denominated in yuans. And notice that Boeing will continue to do well because its competition is in Europe. The dollar is weak against the euro.

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