On November 7, 2000, the day George Bush was elected President of the United States, one US dollar would buy 1.115 euros and 0.686 British pounds. Today, November 5, 2007, one US dollar buys 0.691 euros and 0.480 British pounds. The following chart shows the rise and fall of the dollar since January 1, 1999, the date the euro was introduced.

Source: xe.com.

This deliberate, continual devaluing of the dollar represents not an unfortunate consequence of current US economic policy, but an unabashed component of it. We are told that a weak dollar helps the economy by reducing the price of domestic manufactures sold abroad, thereby increasing profitable exports.

Which leads me to wonder: what exports? It’s hard to find anything manufactured in America. I suppose we are a leading manufacturer and exporter of weapons. I wouldn’t mind if we dropped that export altogether. So who are these American manufacturers who want to sell more American goods by making them cheaper instead of better?

I don’t believe for a moment that devaluation has anything to do with propping up domestic manufacturers. The facts are simple enough and they point to the use of devaluation as an inept, shortsighted means of obscuring the real problem with America’s economy.

The facts to which I allude are these. America sends vastly more money out of the country than it takes in. For years this balance of payments deficit has grown at a stupendous rate. It is a problem. It cannot be explained simply by noting that the US must import expensive foreign oil. Japan and Germany have fewer energy resources than the US, and yet those countries maintain a favorable balance of payments.

Consider this graph showing the US national debt as a percentage increase over the preceding year:

Source: http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

Note that the slope of this graph shows a rough inverse symmetry with the previous graph. The interest on the national debt for the 2007 fiscal year was a record $430.0 billion. (http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm). Naturally, because that interest is paid to foreign creditors, the US trade deficit is at an all-time high ($763.6 billion in 2006, the latest figure I could find).

Devaluation of the dollar in theory should reduce foreign imports by raising their cost to the American consumer, thereby reducing the balance of payments deficit. But that deficit does not result from American consumers buying foreign products; it results from the US government spending over $400 billion a year in debt payments. In short, devaluing the dollar steals from the American consumer through the higher cost for foreign commodities in a pitifully inept attempt to deal with the government’s own profligate spending. The outflow of dollars does not result from some imbalance of currency values; it results from massive US government debt payments.

Of course, if the US were serious about reducing foreign imports, it could do something to make American products worth buying. For example, if the government made its vehicle efficiency standards the toughest in the world, American cars would have the best fuel efficiency in the world. Not only would Americans buy them, but foreign consumers would import them. As everyone knows, the US has chosen instead to adopt the weakest efficiency standards of any major auto-producing nation, giving its manufacturers no incentive to innovate and make their products attractive in the world market. “The current value of the dollar is not the cause of its deficits, it is reflection of the effect of those deficits—which in turn is the result of America’s losing competitiveness in world markets. It cannot sell enough to pay for its purchases.” Narenda C. Bhandari Ph. D., Pace University, “The Balance of Payment Equilibrium Model, A Matter of National Determination and Leadership, http://digitalcommons.pace.edu/lubinfaculty_workingpapaers/44.

But of course, as Yogi Berra said (or Albert Einstein or Jan L. A. van de Snepscheut—http://en.wikiquote.org/wiki/Yogi_Berra), “In theory there is no difference between theory and practice. In practice there is.” In practice, devaluation of the dollar will do nothing to improve the US balance of payments problem. It cannot, as long as the US sends 400 billion dollars a year overseas in interest payments. Rather the weakening dollar punishes American consumers and promotes concern about the American economy.

The dollar is bleeding. Badly. And current US policy, against all reason, is to let it bleed.