Dollars and Sense John Nolan Vice President Steel Dynamics, Inc. Fort Wayne, IN USA
Federal Reserve Coalition for a Sound Dollar American Iron and Steel Institute Steel Manufacturers Association Salomon Smith Barney National Association of Manufacturers Dr. Robert Blecker
The Dollar Crisis Common Ground History Direct Investment Solutions Risks Your Role
The Dollar Goes Up Manufacturing Profits Go Down 28 24 Broad Real Dollar Index (right scale) 130 115 20 16 12 8 Profit Share of National Income in Domestic Manufacturing (left scale) 100 85 70 55 4 1995 1996 1997 1998 1999 2000 2001 2002 40 Sources: Federal Reserve Statistical Release H.10; U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts
Overvalued Dollar Devastates U.S. Manufacturing Change in: Stable Dollar ( 91( 91-96) 96) Strong Dollar ( 97( 97-02) Trade Deficit - $176 billion - $468 billion Imports Exports $800 billion + $204 billion One Trillion Dollars! - $80 billion Six Years After Coalition for a Sound Dollar August 2003
Overvalued Dollar Devastates U.S. Manufacturing Change in: Stable Dollar ( 91( 91-96) 96) Strong Dollar ('97-03) Employment 18.5 million ( 01)( Manufacturing is 14% of USA workforce 501,000 jobs added 3.2 million jobs lost since June 98 Manufacturing is 90% of all USA job losses Six Years After Coalition for a Sound Dollar August 2003
Declining U.S. Industry Machinery Autos Textiles Lumber Chemicals Aerospace
High Tech High Skill Hi Ho! Dollars & Sense
Overvalued Dollar Hits U.S. High Tech Change in: Stable Dollar ( 92-96) 96) Overvalued Dollar ( 97-02) Exports + $25 billion - $31 billion* Imports + $17 billion + $50 billion Trade Deficit + $35 billion ( 96)( -$17 billion ( 02)( Projection for 2002 based on YTD 9/02 figures. *Since 2000 peak. Six Years After Coalition for a Sound Dollar March 2003
Investments Are Down $37 Billion
150 When the Dollar goes up so do US Steel Imports 35 140 130 120 110 100 90 80 Steel Import Share (right scale) Fed s Broad Real Dollar (left scale) 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 Sources: Federal Reserve Statistical Release H.10; U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts
Steel Prices Devastated by Overvalued Dollar 450 400 Hot-Rolled Cold-Rolled 350 300 Historic Low 2001 250 200 92 93 94 95 96 97 98 99 00 01 02 Source: Purchasing Magazine
Overvalued Dollar Hits U.S. Agriculture Change in: Exports: Stable Dollar ( 92-96) 96) Up $20.9 billion Strong Dollar ( 97-02) Down $2.6 billion Imports: Up $9.2 billion Up another $7 billion Trade Surplus: Rose to $27 billion Fell to $11 billion
Right-Sizing the Dollar
The 1980 s Trade Deficit James Baker Secretary of Treasury
The 1990 s Asian Crisis Weak
2002 Dollar Peaks 30% above norm (17-year high)
Overvalued Dollar: Low Inflation Low Import Prices Consumers Benefit Low Interest Rates Inflated Purchasing Power in Foreign Markets
2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
10,000 Baht Equals 1 ton of finished steel 30% Subject to FX 70% Constant 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
10,000 Baht or US$400 for 1 ton of finished steel 1 Baht = 4 and 7,000 Baht are Constant!! 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
1 Baht = 2 13,000 Baht 1 Baht = 4 for 1 ton of finished steel and 7,000 Baht are Constant!! 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
1 Baht = 2 $140 / ton Steel costs up 30% to 13,000 Baht or US$260 1 Baht = 4 $280 / ton from 10,000 Baht or US$400 7,000 Baht remain constant!! 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
Japan, Korea and Taiwan routinely intervene or manipulate currency markets to drive their currencies lower and thus gain competitive advantage against U.S. manufacturers. Six Years After Coalition for the Sound Dollar, March 2003.
2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
Pic of China 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada. Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
The Pegged Yuan: 1. Subsidizes Chinese exports to the US 2. Taxes US imports to China 3. Displaces US exports in third country markets 4. Threatens all of US Manufacturing
Go West Strategy 10 New Cities!
Overvalued Dollar Depressing Capital Spending $37 Billion 58,000 more manufacturing jobs lost in May $100 Billion reduction in profits Reduced ability to compete Loss of Pricing Power
Solution?
Plaza Accord September 22, 1985
COORDINATION Think Plaza
LEADERSHIP Allan Greenspan Chairman Federal Reserve John Snow Secretary of the Treasury
MONETARY POLICY
WIN-WIN
BACKBONE
DO IT NOW!
RISKS
REWARD 10% decline in $ = 6% increase in profits
What Can You Do? Try www.sounddollar.org
SOURCE ACKNOWLEDGEMENTS: Let It Fall: The Effects of the Overvalued Dollar on U.S. Manufacturing and the Steel Industry Robert A. Blecker, Ph.D., Professor of Economics, American University Six Years After Coalition for the Sound Dollar, March 2003. Metals & Mining: China s Impact on the Metals and Mining Industry Salomon Smith Barney January 23, 2003 China Opportunity or Threat? January 13, 2003. Salomon Smith Barney Nihon Keizai Shimbun newspaper February 1, 2003
Questions?
Dollars and Sense John Nolan Vice President Steel Dynamics, Inc. Fort Wayne, IN USA Once again, thank you very much!!