If people do say such a thing—and I wouldn't know, since I've mostly stopped reading anything in the popular press having to do with economics—then you're completely right, it's stupid. All I was objecting to was that people buy and sell currencies exclusively, or even largely, based on whether they agree with the economic policies of that currency's government(s). What the exchange rate does is balance the supply of dollars from net outflow of capital with demand for dollars to buy net exports. Bad economic policy might or might not affect the former, and even if you do care what "the Market" thinks of the Bush tax cuts, you can't figure it out by looking at the real exchange rate... you have to do some boring drudgery and actually look at all the potential causes and effects: in this case, for instance, the fact that the 2001 tax cuts evidently didn't do much, and that this business cycle recovery hasn't been that great as business cycle recoveries go.
(As it happens, one particular bad economic policy of Bush's, the budget deficit, does in theory affect the real exchange rate, but it causes it to appreciate, by reducing the supply of loanable funds, which increases the interest rate, which increases the return to foreigners for buying dollars, and discourages Americans from investing abroad.)
Erk, sorry to derail your comments thread on a tangent again.
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Date: 2006-12-05 11:45 pm (UTC)(As it happens, one particular bad economic policy of Bush's, the budget deficit, does in theory affect the real exchange rate, but it causes it to appreciate, by reducing the supply of loanable funds, which increases the interest rate, which increases the return to foreigners for buying dollars, and discourages Americans from investing abroad.)
Erk, sorry to derail your comments thread on a tangent again.