10/15/2010 Foreign exchange rate is the competency report card of a government's ability to manage a country's economy

It is quite a amazing how the current Administration of our government has tried and almost accomplished the goal of brainwashing or duping the American public into believing a lower US Dollar value is good for us. They even got many financially illiterate politicians (Congressmen) to sing their tunes with them.

Try to imagine that your kid comes home back from school with a D on his report card, argues with you and tries to brainwash you that an F should be better so that he would be able to compete with other more diligent and industrious kids? Furthermore he complains that the rules need to be changed so that the other kids should not study hard and instead should be playing more like he does? He calls the bad grades on his report card a “manipulation” by those hard working kids. He even labels those industrious kids “Grade Manipulators”.

The simple truth is that a lower exchange rate would produce the immediate wholesale sell-off of a country’s wealth in the global marketplace, not increasing any genuine economic competitiveness. Economic competitiveness is produced through productivity and innovations, not by artificially altering exchange rate so that incompetent politicians could cosmetically buy some more time to hang on to their jobs a bit longer.

Competent governments in managing the country’s economy will be rewarded with a stronger currency and hence increased national wealth. Responsible and hardworking citizens under an incompetent government, on the other hand, will lose their personal wealth instantly in the global marketplace when their national currency is devaluated, no matter how hard they may have worked individually.

There is no quicker way to make the US lose its position as the No. 1 economy of the world and its associated super power status than de-valuating the US dollars. Foreigners with a stronger currency would then be able to buy our treasured assets in a fire sale. In addition, with a weak currency, the US would not be able to compete in the global marketplace to buy commodities such as crude oils, rare earth materials, gold, silver, platinum, food, crops, other raw materials etc. The cost to produce manufactured goods in America will be getting harder and harder as well as more and more costly. It will make the US lose even more economic competitiveness and get our country in a downward spinning vicious cycle. The list of the potential problems and disasters goes on and on …

Perhaps it is time that the parents sit down with their kids for a serious talk?

P.S. I made a keynote speech for ISDA’s Annual General Meeting held in Singapore back in March 2006 regarding the China’s role in the global financial market. In that speech I spoke about the exchange rate issues. The points are still quite valid. Here are the links to the presentation and the speech video.

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