Memorandum

 

To:	Friends of ABC
From:	John Endean
Date:	August 9, 2001

RE: That Bad, Bad Dollar

Mr. John M. Devine, the Chief Financial Officer of the General Motors Corporation, believes that the dollar is too strong in comparison to other currencies. According to an article in the August 9, 2001 edition of the New York Times, Mr. Devine blames the strong dollar for "destroying the manufacturing capability and the manufacturing competitiveness of this country."

That's a big indictment. What does Mr. Devine want to do about it? Well, he admits that "we" (who, by the way, is "we": GM? the National Association of Manufacturers? the Beardstown Ladies?) "have not historically been very successful influencing the administration on currency." And, anyhow, "even if the administration wanted to do something about it, currency markets operate in their own universe." Nevertheless, Mr. Devine wants to put the issue "on the table" because "it is a fact we're dealing with."

Now, Mr. Devine is a "numbers" guy and numbers guys have always been important spokespeople for GM (remember Roger Smith?). But before we go on a crusade to get that doggone dollar down, let's think about it for a minute or two.

First, the currency markets. I read Robert Kuttner admiringly and so I know I'm not supposed to worship the market. Still, I can't help but observe that of all the markets I know of, the international currency market is probably the most perfect in the sense that it dispassionately absorbs all available information from all available sources and arrives, as a result, at the most efficient relative pricing for national currencies, including the dollar.

Thus I have never been able to figure out assertions that the dollar is "too strong." The dollar's price is what the market says it is, and while I might not like a particular price at a particular time, I think it's tough to argue that the market has got it wrong. Of course governments can intervene in the currency markets and along these lines I note that some are treating James Baker's "talking down" of the dollar in the 1980's as a near legendary performance. But, whether you're talking about the Baker intervention, or subsequent efforts to "manage" the dollar's price, it's important to remember that these actions are at best temporary palliatives. The currency markets, over the long haul, hold the whip hand.

These are the bad facts, and one of the reasons executives of large corporations get paid the big bucks is to "deal with" those facts. I would have thought that a CFO of a company that has long boasted of its global strategy would be bragging about his firm's ability to handle FX challenges rather than whining wetly about the "strong dollar." (Time out for a thought experiment: if the dollar suddenly became "weak" and GM were booking sales hand over fist, do you think Mr. Devine would forbear from taking bows in favor of crediting a favorable exchange rate?)

Manufacturing is important to this country and at the moment it is flat on its rear end. But manufacturing's problems are not wholly or even largely a function of currency values and to argue otherwise is simply a way of off-loading responsibility from the shoulders of those who ought to be bearing it. In the particular case of General Motors, a recent managerial hire reflects this fact. GM just made Bob Lutz a vice-chairman. Lutz made his name not in international monetary policy but instead as an operations guy concerned with the design and marketing of automobiles people admire and will pay a premium to own. If he worries much about the value of the dollar, I'd be surprised.

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