Dollar at Record Lows, Europe Unconcerned

Reuters reports that the dollar has fallen to a 26-year low against the British pound sterling and is nearing the lowest levels against the euro in 2 years. The abrupt change in exchange rates has been driven by concerns about slowing US growth and the spectre of lower interest rates at home compared with higher rates abroad.

The Euro zone has been receiving much more cheerleading from the press of late. The New York Times and others have recently remarked on the resurgent strength of Germany - where unemployment may fall below 9% if the current strength continues. A recent article even went so far as to observe that Chinese entrepreneurs are forsaking America for Europe. Unfortunately, as even the most ebullient euro-boosters must note, Germany's recent spate of economic growth has been driven by wild successes in niche markets. Sensors for lasers and satellite parts for Boeing are certainly growth opportunities, but Germany as a whole and certainly no other large economy can base its growth on niche manufacturing.

The manufacturing lobby in the United States has been arguing hard for a sharply reduced currency to boost exports, but now that it has finally arrived they are strangely silent. Even in the face of such favorable economic conditions, no one seriously expects all those outsourced jobs to miraculously return.

Economists will tell anyone who listens that in the long run, fluctuations in the value of currency between widely held, freely traded alternatives are irrelevant to growth rates and have a neutral effect on the economy. But as journalists are so fond of quoting Keynes, "In the long run we are all dead".