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Wednesday, December 21, 2011

Strong Japanese Yen is America's Strength

     For years, liberals like James Gailbraith, Paul Krugman, and Dean Baker have told us that on the question of free trade, it is not trade a such that is the problem but that much of the problem is an overvalued dollar. Baker blamed in large part the U.S. Treasury for having what Hank Paulson used to call "the strong dollar policy" and which Larry Kudlow always hypes as "King Dollar."

    What we need is a weak dollar policy paradoxical as it sounds. Right now it appears we are getting sizable relief on the currency front. According to a front page article in today's Wall Street Journal Japanese automakers-the piece focuses particularly on Honda but the trend is true for its competitors as well-all have plans to increase capacity in U.S. plants.

    They plan to expend exports from the U.S. and hire more U.S. workers. The factors causing this is a combination of a strengthening Yen against the dollar-in 2007 the dollar traded at 120 yen in 2007 and was only 77.89 on Tuesday-as well as the recovery of the U.S. auto market after a historic downturn, exacerbated recently by the economic fallout from the Japanese earthquake-even now Japan is far from back to business as usual.

   According to John Mendel. executive vice president of sales for American Honda, "Every type of plant in North America is under some kind of expansion." pg. A2 This strategic shift if directly linked to the Yen. U.S. Honda is doubling capacity of a Civic plant in Greensboro, Indiana from 100,000 vehicles a year to 200,000 which will add 1,000 jobs.

   Add this to the fact that we are not Europe-or even as stupid as Britain, though we will be if we have another tea party election next year- and there is some reason for optimism.

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