On one hand, American manufacturing workers feel the pain of layoffs when the high value of the dollar makes what they produce expensive to sell overseas. U.S. manufacturing (which is not isolated from other domestic employment sectors) lost 632,000 jobs in the first seven months of 2001, the Bureau of Labor Statistics reported.

On the other hand, the strong dollar valuation makes U.S. imports less costly. Significantly, President Bush and Treasury Secretary O’Neill speak differently about a strong or weak dollar. Taking the longer view can be useful here.

Today, foreign exchange markets instead of the U.S. government determine the dollar’s value. The Bush administration thus deals with a different dollar than another Republican president did 30 years ago. Allow me to explain.

President Nixon removed the gold backing from the dollar on August 15, 1971. The greenback had been regulated, fixed to the price of gold ($35 an ounce) since the end of World War II. Dollars backed by gold had flooded foreign shores, with the Marshall Plan that rebuilt Europe a case in point.

Then, the U.S. was a creditor country. No longer. Bush’s U.S. is simultaneously the world’s biggest debtor nation and the engine of global economic growth.

Nixon’s deregulation of the dollar helped U.S. corporations and financial institutions as they lost profits and market share to emerging competitors in Europe and Japan during the sunset of postwar affluence. In “Blues for America,” economist Doug Dowd described these events.

He wrote: “The creation by North American, European, and Japanese capital of productive forces for durable consumer and capital goods along with a rapidly advancing technology was, of course, a major stimulus in the long expansion. By the 1970s the resulting facilities had already become seriously duplicative, producing intense competition for critical raw materials and for markets, with consequent whipsaw effects.”

The ending of post-war prosperity for working Americans quickened. What economist Richard Du Boff called the “corporate counteroffensive” began to restore profitability to U.S. corporate and financial sectors. Market competition intensified and the nation deindustrialized. Manufacturers relocated factories outside the U.S. to boost profits.

Currently, the U.S. auto industry is taking it on the chin. Bush’s dollar policy is harming them. The strong dollar is no friend of theirs.

Certainly, the value of the dollar is a negative factor. Yet it is market competition itself that creates imbalances between production and consumption. Worldwide, there are too many cars and other goods for too few buyers. Supply and demand is out of whack. The global market breeds instability and fragility, which can appear as currency crises.

Take, for example, the economic breakdowns of the 1990s that included currency devaluations in Indonesia, Mexico, Russia, South Korea and Thailand. Crucially, such monetary meltdowns were effects, not causes, of unequal relations between these nations and their richer competitors (Europe, Japan and the U.S.). The weaker nations couldn’t repel harm from market competition. Europe, Japan and the U.S. could—for a time.

Which brings us to the possibility of a dollar devaluation. It could lead to a flight of dollars now flowing into the U.S.

The U.S. lives large, borrowing $450 billion a year from foreign lenders, or some $1.23 billion every 24 hours. As the slowdown laps against American shores, the International Monetary Fund has warned that such a level of indebtedness cannot be sustained indefinitely.

Should the U.S. heed the IMF’s advice and reduce its level of foreign borrowing? IMF policy recommendations for nations to get their financial houses in order have included firing workers, privatizing public services and creating legal systems more favorable to big businesses, corporate and foreign investors.

Markets could weaken the value of the dollar. Much depends on U.S. economic growth, corporate profits and share prices.

And as economist Jim Devine pointed out, the U.S. can repay its global debts with dollars. Nations such as South Korea and Thailand couldn’t use their currencies to pay foreign lenders.

The U.S. stands alone, so to speak ,as the buyer of last resort for the world economy. That the world’s biggest economy also relies so heavily on foreign funds as the global economy slows down has made the IMF go on the record with a warning about such huge borrowing.

The Bush administration claims to be fond of market competition. Will/can the president let the market decide the dollar valuation during the slowdown?

The ramifications are national and global. Crucially, policy makers don’t have a monopoly on questions and solutions concerning market competition and the dollar. Just ask the people protesting in late September against the IMF in Washington, D.C.

Seth Sandronsky is an editor with Because People Matter, Sacramento’s progressive newspaper <ssandron@hotmail.com>

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