In the last seven years, every American worker has gotten a huge pay cut. Nobody talks about it, but it is there, and it is the result of the way this country has been mismanaged. The dollars you are paid have not gone down. It is just that what you get paid is worth less. It has to do with international finance and how money works. Stick with me, and I will try to explain.
Since 2000, the dollar has gone from 95 cents to the euro to $1.56 to the euro. If we are not going to be buying a fancy European car or going on a fancy European vacation, why should we care? The change is, of course, worldwide. Three years ago, the Canadian dollar was worth 82 cents. Now it is worth more than $1. In some respects, we are told, this loss of value of the dollar should help because it makes American goods relatively cheap so that foreign people will buy our merchandise and reverse a balance-of-trade deficit that has worried economists for a long time.
Except that is not happening. Our balance of trade with the European Union for 2007 was a minus $107 billion. That means we bought $107 billion dollars more in goods from them than they bought from us. That this happened in spite of the fact that our dollar is worth less and less and less should be a matter of grave concern.
What is the reason for the concern? This continued trade deficit in the face of a seriously declining dollar can only be explained a few ways.
The most likely causes are a perception overseas that American goods are not very good, or a taxing system in trade-partner countries that make our stuff not competitive in spite of the weakened dollar. There is no space here for a deep analysis of those issues. Suffice it to say this dreary circumstance seems to be a combination of both.
As far as perceived quality is concerned, Toyota has forced GM to share its crown as the world’s biggest automaker, even though GM has been around decades longer. As an example of the tax issue, a friend from an EU country was here and bought a set of Ping golf clubs. He also bought a used golf bag to take them home in because he wanted to claim they were clubs he already owned and brought with him. Otherwise, he would have to declare them and pay a fierce import tax. The point is that the alleged good news about a declining dollar – increased sales abroad and an improved balance of trade – is not happening.
What IS happening is that the average American finds each month to be a little tougher economically than the last. And the end is not in sight. An example: gas is pushing $4 a gallon like it was a wheelbarrow.
Why is that happening? Why is our dollar going down? That answer is easy: Our government is spending money we do not have.
In the last 40 years, the United States has had a balanced budget only in 1999, 2000 and 2001. I assume you know, but just in case – a balanced budget is a budget that does not spend more than the government takes in. In common terms, if you have a balanced budget, you are living within your income.
So how does our government perform this miracle of spending more than it takes in, year after year? Easy. It has printing presses and it makes more dollars. Why is that important? Stop and think what you do with a dollar. You go to work, put in your time and get some dollars. You go to the grocery store and buy dinner with your dollars. You could have made a deal with the grocery store owner to work there for your dinner, but you work somewhere else and take the dollars into the store instead. And you trade your dollars for your dinner.
The point is, we really have a barter system. I work for you for dollars. I trade the next guy dollars for food or housing or a ticket to a movie or whatever. Some Indian tribes and early European traders used beaver skins, but these days it is hard to make change for a beaver skin, so we use dollars. This works well as long as nobody changes the rules. If I want a loaf of bread, and I know the loaf of bread will cost a dollar, I can decide if I want to work for a dollar an hour so I can trade an hour of my time for a loaf of bread.
Before there was paper money, everything was done with coins — hard money. In Europe, money was made of coins cast from silver and gold. I don’t know what the Native Americans did if they got short, but the Europeans would, if the government ran out of money, do something called “debasing the currency.” They took silver and gold coins, melted them down, added lead or some other cheap metal, and made new coins. They could turn $100 face value in coins into $500 face value in coins overnight. Because the gold or silver in the coins was the only thing that gave them value, prices soon adjusted to reflect the new deal. If a coin was half gold before the debasement but only one-quarter gold afterward, the coin eventually would only buy half as much as it did before the change.
But in the meantime, the government could pass them out as full payment for various debts, cutting its cost in half and, usually, screwing up the economy for a long time.
Our government does not have to melt anything to do the same thing. All it has to do is to crank up printing presses, and some of those do not even have to be physical. Our government has perfected getting into debt to the point where it does not have to even print money. Our government can spend money it does not have without even writing a check!
Our government has us in debt for more than strong $9.3 trillion. And the debt goes up nearly $2 billion A DAY.
But why should we care? I will tell you why.
We are headed for a train wreck. Most commodities are international. If you can ship something to the United States, you can ship it to Europe or Asia. What a seller can get for it in those markets dictates what the seller will demand for it here. Because we are debasing the currency, our money will buy less and less on the international market.
Oil is the best example. The cost of fuel changes everything. It changes the cost of bringing you your dinner every night. There are two reasons gas costs more than $3.50 a gallon. One is that oil companies have been able to do price-fixing without any fear of government interference for the last seven years. The other is that the value of a dollar has assumed the glide path of a set of car keys. It is going DOWN. It is in free-fall. In 2000,when the dollar was worth much more than it is now, oil cost about $30 a barrel. It also cost about 30 euros a barrel. Now it costs more than $100 a barrel but only about 65 euros, entirely because of the change in the value of the dollar and euro that results from our debasement of the currency. Wages in Europe have not declined while the value of the euro has shot up against the dollar. If you had a tanker full of oil and you could sell it for 65 euros a barrel, you would be crazy to sell it for $65. You will demand (and get) $105 for that barrel of oil.
The result is that even though the price of gas has risen here and in Europe, the amount of effort an American has to put into buying gas has become a lot more than the effort a European has to put in to buy the same amount of gas.
In other words, if a European had to work half an hour to earn the money to buy five gallons of gas in 2000, he will have to work an hour to get the price of five gallons now. But if an American had to work half an hour to buy five gallons in 2000, he will have to work an hour and a half now.
This disparity goes on across the economy. If something goes up 10 percent in euros, it goes up 15 percent in dollars. If it goes up 100 percent in euros, it goes up 150 percent in dollars. Because we live in a global economy, what money in another country will buy directly affects what that commodity will sell for here.
People still go to Mexico to buy things. Things are cheaper there because the peso is worth so little. (It is worth more than it used to be but still not much.) The problem in Mexico is a direct consequence of the folly and stupidity of the government, just as it is here. But the stupidity here is not done. Stand back. If we don’t make our government quit spending money like a sailor on shore leave, the dollar is going to approach the value of the peso.
Dugan Barr started practicing law in Redding in 1967 as an insurance defense lawyer working for William W. Coshow
In 1973, he formed his own firm doing plaintiff and defense work, primarily in the areas of personal injury and wrongful death. Since that time he has tried more than 200 civil jury cases to verdict. These cases cover a broad spectrum of the law,including personal injury, wrongful death, products liability, airplane crashes, boating accidents, dangerous condition of public property, legal malpractice, medical malpractice, realtor malpractice, accountant malpractice, insurance bad faith, lender liability and securities fraud.
He is married and has five children.
The offices of Barr & Mudford, LLP, are located at 1824 Court St. in Redding and can be reached at 243-8008.
