Are investors losing confidence in the US as the dollar falters?

CGTN Europe

CGTN Europe interviewed Clifford F. Thies, Professor of Economics and Finance at Shenandoah University.

Transcript

00:00Let's talk now to Clifford Fies, Professor of Economics and Finance at Shenandoah University in Virginia.

00:07Professor, welcome. Good to see you.

00:09First, a word about the relationship, well, the deteriorating relationship would be more accurate,

00:15between President Trump and the Chair of the Fed, Jerome Powell.

00:19How damaging is this? How unprecedented is this? And where does it go next?

00:25Yes, this hit the market pretty badly yesterday.

00:28The market went down, the S&P 500 went down by over three points on this bombastic remark

00:37by Trump calling Chair Powell a major loser.

00:44Can President Trump remove or force Jerome Powell from office? And if so, what happens then?

00:52Well, force is a hard to define word.

00:56Powell has a fixed term as chair, but the incoming president usually replaces the outgoing chair.

01:07Powell, if he wants, could remain on the board.

01:10He has a 14-year term as a board member, but only a four-year term as chair.

01:16Trump has always been a dove on inflation, and Powell has been a moderate, balancing the Fed's concern with maintaining

01:25employment and suppressing inflation.

01:30Well, look, let's talk about the dollar.

01:32Goldman Sachs saying that the dollar's weakness is here to stay.

01:36Just how significant are these falls in the dollar?

01:40Yes, well, I think the dollar was overvalued, and so this adjustment might be better viewed as a return to something like

01:51intrinsic value rather than a fall in the dollar.

01:54And it is varied across the world.

01:59It's about 10 percent reduction in the value of the dollar to the euro and the pound.

02:07But on average, compared to the rest of the world, it's only a 5 percent adjustment.

02:14And presumably, a weaker dollar is good news for some countries around the world.

02:19Yes, if you're planning on going to Disney World, it's a discount.

02:26On the other hand, if you're planning as an American to go to Paris, it's going to be more expensive.

02:32But it's very complicated to look at how this impacts production because of our intertwined supply chains nowadays.

02:42Hardly anything that we call an American product has components only from America.

02:48Our supply chains are sourced throughout the world.

02:54We've seen global markets react rather unevenly.

02:58I mean, just explain to us why are some markets relatively stable, like Asia Pacific, while others are clearly rattled?

03:08Right.

03:09It's always a problem to explain all the variation.

03:14There's a lot of country-specific issues.

03:16But we could say as one tendency, to the extent that countries are strong in their domestic saving and in their current accounts,

03:26their currencies are going to do fine.

03:29And to the extent that countries are weak in their domestic saving and their current accounts,

03:35they're going to be rattled.

03:36What would help restore stability in markets?

03:42What needs to happen at the Fed in Washington or come to that anywhere else?

03:48Yes, I think this is going to be a hard problem because the underlying of this uncertainty,

03:56these deficits, both current account and national budget deficits,

04:01is the excess spending that we got into during the COVID years and which we still have problems with.

04:11So the American budget deficit is about 6% of GDP and our current account deficit about 4% of GDP.

04:20And this is going to take something a bit more than simply eliminating waste, fraud and abuse from the budget.

04:29Professor, good to see you.

04:31Thank you for that.

04:31Professor Clifford Fiers, Professor of Economics and Finance at Shenandoah University in Virginia.

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