[Marxism] Few benefits for US yet from dollar rise, but dollar-borrowing countries squeezed

[Fred Feldman]

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/07/AR2008100702
439.html
Few Seeing Usual Benefits of Rising Dollar
Normally, Americans Would Travel More and Imports Would Jump, but Caution
Rules the Day

By Mary Jordan and Karla Adam
Washington Post Foreign Service
Saturday, November 1, 2008; A09



LONDON -- The value of the U.S. dollar has soared with unheard-of speed
against many currencies in recent weeks, but the global financial crisis has
altered the usual effects of such a spike.

Normally a rising dollar means more Americans traveling abroad and foreign
countries exporting more goods and services to the United States. But this
time, even though the dollar has gained about 25 percent against the euro
and the British pound since early August, few analysts said they expect to
see that happening anytime soon.

As Americans face recession and rising joblessness, fewer are tempted to
take overseas vacations or buy more imported goods. "In an ideal world, the
soaring dollar sounds wonderful" for British exports, "but quite frankly no
one is buying anything from anyone," said Howard Wheeldon, senior strategist
at BGC Partners in London.

At the same time, the speed of the climb has brought debt problems almost
overnight to many struggling countries. Foreign governments and individuals
who borrowed in dollars are finding that the corresponding rapid decline of
their currencies against the dollar has made it harder, and in some cases
impossible, to buy enough dollars to keep up loan payments.

The International Monetary fund's emergency talks, including those with
Iceland, Hungary and Ukraine, have largely involved nations whose banks are
facing huge amounts of unpaid debts that are driven in part by the mismatch
of local currency income and foreign currency debt. Also, the euro has risen
against Eastern European currencies.

In Ukraine, where the hryvna has fallen to its lowest value since coming
into use in 1996, so many people have rushed to convert their savings into
dollars that many exchange offices ran out. About $3 billion worth of local
currency has been turned into dollars and euros, according to Sergiy
Kruglyk, a spokesman for the National Bank of Ukraine.

The dollar has strengthened significantly against the Indian rupee, the
Polish zloty -- nearly every currency except the Japanese yen.

While it may not make U.S. consumers rush out and buy cheaper imports,
analysts said it may make U.S. exports even harder to sell, because the
strong dollar tends to make them more expensive to foreigners. Also,
tourists may be less tempted to visit the United States -- already there are
signs that Canadians who frequently shopped in U.S. border cities are
staying home because goods are suddenly far pricier for them.

Like gyrations in world stock markets, the speed and unpredictability of
currency fluctuations have caught many by surprise. "We have really not seen
volatility of this magnitude -- it's jaw-dropping," said George Davis, chief
foreign exchange analyst for RBC Capital Markets in Toronto.

Analysts attribute the rise of the dollar to a combination of factors,
including that investors in hard-hit emerging markets are increasingly
selling local shares and retreating into dollars, which are still widely
seen as safer than most currencies.

Alex Dunn, senior account manager at Caxton FX, a foreign exchange firm that
has seen a 400 percent surge in transactions, attributed the rush to the
dollar to the idea that while "America led us into the global recession,
they will lead us out."

Wheeldon offered a similar view. "When people think, 'Where should I put my
money?' and they see things like Iceland's currency falling off the cliff,
they say, 'Well, you have to put your money somewhere, why not the U.S.
dollar?' "

In India, another country seeing its currency's value dwindle against the
greenback, Rajesh Jain, vice president of Indian brokerage firm SMC Global
Securities, said that the new rates are throwing out textbook concepts that
the health of a currency generally reflects the health of its economy.

"Today's stronger dollar runs counter to all the widely held economic
theories. There is so much volatility, everything is in a state of flux.
What we are seeing is not related to reality."

Thomas Huene, economist for the Federation of German Industries, said that
even though the euro falling against the dollar should bring good news for
German cars and other exports, that may not happen. With the U.S. economy
contracting, he said, "the new exchange rate may prove to be just one drop
in the ocean."

China's yuan is pegged to the dollar, so Chinese companies are protected
against rapid currency swings in their dealings with the huge U.S. market.
Though the dollar's appreciation can undermine their goods' competitiveness
in non-dollar markets, it helps them import supplies from such places for
manufacturing. In sum, most exporters, settling their contracts in the U.S.
currency, have welcomed the dollar's rise.

But some are not counting on the dollar's bounce to last long and are trying
to get their clients to shift their payments over to other currencies. "The
rise of the exchange rate is temporary, like a momentary recovery of
consciousness just before death," said He Fan, an international finance
researcher at the Chinese Academy of Social Sciences.

In Argentina, the peso's fall is contributing to fears of another national
debt default; when Comercial Mexicana, a retailing company that operates the
Costco chain in Mexico, filed for bankruptcy protection last month, it cited
$2 billion in losses related to the fall of the Mexican peso.

Simon Bradley, an executive vice president of Visit Britain who is based in
New York, said, the pound's drop against the dollar "has been so sudden,
consumers are waiting to see if this is real."

If the pound stays at around $1.60 to dollar, rather than the long-time
range of over $2, he said, the national tourist agency will incorporate the
favorable exchange rate into its January advertising campaign to try to lure
Americans to Britain.

Many Americans living abroad, including Carl Wheeling, 68, who spent 30
years in the U.S. Navy, are already enjoying the sudden heft of the dollar.
His pension check arrives in dollars in Soham, a town north of Cambridge,
England, and it's now "kind of a relief" to cash it into pounds. "It's
significant, no doubt about it."

When the pound peaked against the dollar in November 2007, it took $2.11 of
his pension money to buy a single pound. Thursday it required just $1.63.

In Paris, analysts said the rise of the dollar is so far too recent and
tenuous to have a substantial effect on tourism and exports. But they agreed
that whatever stimulation the rate change might provide has thus far been
eclipsed by the financial crisis and its effect on consumer psychology.

Philippe Marion, marketing director for the Barton and Guestier
wine-exporting firm in the Bordeaux region, said that most wine export
contracts are drawn up with an exchange rate fixed over an agreed time, such
as three months or a year. As a result, the recent shift in the euro-dollar
rate has not taken hold in wine sales.

In any case, Marion explained, the overriding factor for Bordeaux-region
wine exporters is that economic worries in the United States have for the
past several months already cut deeply into high-end exports.

Paul Roll, general director of the Paris Tourism and Convention Office, said
tourism has not yet seen an impact. "The real question is for the year
2009," he said.

For the time being, however, tourists seem few and far between. A
double-decker tourist bus pulling into Place Saint Michel on the Left Bank
on Tuesday, for instance, had only four passengers. But those American
tourists who did show up expressed satisfaction at seeing their dollars go a
little further to underwrite the traditionally high prices of Paris.

"It's wonderful," said a New Jersey woman at the entrance to the Sainte
Chapelle, the tiny 13th-century church famous for its stained glass windows.

Correspondents Edward Cody in Paris, Ariana Eunjung Cha in Shanghai and Rama
Lakshmi in New Delhi and special correspondent Shannon Smiley in Berlin
contributed to this report