# Fixing the Declining US Dollar **URL:** \ **Category:** Factual Questions\ **Created:** [July 7, 2008, 10:45am UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539 "2008-07-07T10:45:37Z")\ **Posts on this page:** 8\ **Page:** 2
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 7, 2008, 7:14pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/21 "2008-07-07T19:14:27Z")
[QUOTE=Sunspace] I’m not sure that that’s always true. Canada balanced its federal budget about ten years ago and its dollar has strengthened. [/quote] What **Rysto** said. At the time Canada started attacking its deficit, the loonie’s value compared to the USD started to plummet. It was only into W’s term, years after the Canadian budget was balanced, that the friendly frozen dollars of the north started to reclaim ground against the good ole American buck. > [@Tom Tildrum](#): > > In theory, this is true, but in practice, it’s exceedingly difficult to show any connection between the amount of government borrowing and prevailing interest rates. Note the falling interest rates during the periods of deficit run-up in the '80s and the '00s. I’m not gonna deny that, exactly, but I want to reiterate that [the basic picture is correct](http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=06&year=2008&base_name=ben_stein_goes_wild_at_the_nyt): > [@](#): > > The basic story of the 80s fits this picture very well. The Reagan deficits led to higher interest rates, which caused the dollar to rise and the trade deficit to soar. Toward the middle of the decade, the deficits came down somewhat and interest rates fell. The dollar fell also, and the trade deficit eventually came down to sustainable levels. The whole story is more complicated, but few economists would dispute the essence of this picture. It’s similarly hard to deny that, as far as currency exchange rates are concerned, what the world wants to see is higher interest rates in the US. The Fed declined to do anything last time they met (despite my strongly worded emails hoping for some relief before the European tourism season started), but inflationary pressure is building. Soon enough they won’t have any choice, and those interest rates will start creeping up to the levels the world expects to see them. And with that done, the dollar should regain some of its ground, thus easing a bit of that inflationary pressure. I admit, all of these things are too interconnected to always see a perfect correlation between, say, budget deficits and interest rates. But even with all the noise in the system, a large majority of economists would seem to agree that the relationship is solid, as Baker indicates in that quote. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [July 7, 2008, 9:58pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/22 "2008-07-07T21:58:12Z")
[QUOTE=Sunspace] Could the US actually _destroy_ dollars? [/QUOTE] Sure we could destroy dollars, but that would mean running a budget surplus rather than a budget deficit. But since there are 300 million people in the US screaming for governement services, and 300 million people in the US screaming for lower taxes, this isn’t easy to achieve. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [July 15, 2008, 9:16pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/23 "2008-07-15T21:16:56Z")
[QUOTE=Jonathan Chance] A better fix, in my book, would be to begin to bring down the supply of dollars in the market by reducing federal borrowing. [/QUOTE] Why not just reverse the Bush-era tax cuts? ---
**Author:** ![Desert\_Nomad](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/desert_nomad/32/177_2.png) [@Desert\_Nomad](https://boards.straightdope.com/u/Desert_Nomad)\ **Post date:** [July 16, 2008, 7:32am UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/24 "2008-07-16T07:32:12Z")
The falling dollar is causing may US expats here to pack up and go home. The Czech Crown is currently one of, if not the strongest currency in the world in terms of trend in buying power towards other currencies. CZK per USD 1/1/06: 24.4 1/1/07: 20.9 1/1/08: 18.2 Today: 14.4 When I came here the first time in the 90s you could get as much as 42 to the USD. I figure it will be at 12 by the end of the year. If you are earning CZK, it sure makes life in the US look cheap: Everything in the US cheaper: fuel, food, electronics, clothes etc. I don’t think there is a “fix” possible, as this is the natural progression of many years of US monetary policy. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [July 16, 2008, 12:16pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/25 "2008-07-16T12:16:01Z")
[QUOTE=BrainGlutton] Why not just reverse the Bush-era tax cuts? [/QUOTE] Yep. Get serious about balancing the budget. We should consider a constitutional amendment to permit the [line-item veto](http://en.wikipedia.org/wiki/Line-item_veto), the better to make this a more realistic prospect. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [July 16, 2008, 1:37pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/26 "2008-07-16T13:37:23Z")
[QUOTE=BrainGlutton] Why not just reverse the Bush-era tax cuts? [/QUOTE] Isn’t that what I said? Reducing federal borrowing can come one of two ways: 1. Increase income 2. Decrease spending Some combination of the two would be the most likely outcome. Politically, it’s a nasty fight. I think we all know that. In simple, the electorate doesn’t WANT higher taxes nor do they wish to have services curtailed. It’s a conundrum. Unfortunately (or fortunately, depending on one’s economic point of view) the broader picture has a way of dealing with this sort of behavior through weakening of the dollar. So even if we don’t make the hard choices the world will impose such upon us. Call me silly but it’s always been my contention that controlling how it happens ourselves is better than allowing outside forces to make that call. But I’m an idealist. ---
**Author:** ![Spectre\_of\_Pithecanthropus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/spectre_of_pithecanthropus/32/12343_2.png) [@Spectre\_of\_Pithecanthropus](https://boards.straightdope.com/u/Spectre_of_Pithecanthropus)\ **Post date:** [July 16, 2008, 5:20pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/27 "2008-07-16T17:20:59Z")
[QUOTE=mazinger\_z] Strengthening the dollar requires less spending by the federal government and raising the interest rates. How you get there is a very political answer, though raising in the interest rates is a no-brainer (I say this as I have made all my major purchases for quite a while 🆒 ). [/QUOTE] I notice that foreign-based banks, like ING and HSBC, seem to be offering the best interest rates on savings deposits by far, severalfold over what American banks offer. Is that partly because the foreign banks are betting against the dollar in the near/middle term, so they’ll have no problems whatsoever paying that kind of interest to American customers? ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [July 16, 2008, 5:59pm UTC](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539/28 "2008-07-16T17:59:23Z")
[QUOTE=Spectre of Pithecanthropus] I notice that foreign-based banks, like ING and HSBC, seem to be offering the best interest rates on savings deposits by far, severalfold over what American banks offer. Is that partly because the foreign banks are betting against the dollar in the near/middle term, so they’ll have no problems whatsoever paying that kind of interest to American customers? [/QUOTE] I don’t think it’s anything that complicated. A lot of the high interest savings accounts are really promotional only (which is how I got stuck with Citi, not that I’m complaining), but it’s worse than my ING right now). Additionally, the money isn’t all that flexible in terms of movement and ING is notorious for this (it might have gotten better, but I haven’t taken any money out of that account for a while). IOW, if you have to transfer money, it sits for a day or two while it collects interest (and you don’t) and then you get your money. Also, I don’t think banks can “gamble” (for lack of a better term) with deposits, like us regular joe consumers. We can kite check, buy on margin, and send in payments late – but not incur any fines late with impunity. Banks are heavily regulated in that regard, though they can take advantage of arbitrage and deposit shuffling as mentioned above. However, this is all pennies on the dollar for them, but might be enough for a small profit and cover their high interest pay outs. Plus, having one account at a bank is a good gateway to increasing your business with the bank and that in of itself might be worth the risk. [Previous page](https://boards.straightdope.com/t/fixing-the-declining-us-dollar/455539.md?page=1)