Leading “gurus” like Abby Joseph Cohen will tell you that the weak US dollar is icing on the cake for equities to head higher. This earnings season foreign currency translation gains in the financials of America’s largest companies contributed greatly to the numbers that investors seem to love. We also keep hearing how wonderful it is for our firms to be able to export goods into markets with stronger currencies. While all of this may be true, it is not true forever. There comes a point where a weak dollar isn’t such a wonderful concept. Please read this great commentary from Axel Merk and you might just believe what we are saying.

Our Congress is advancing protectionist policies and as much as people like to pin this entirely on the Dems, that is no longer true. Republicans are playing along or just rolling over in this ridiculous pursuit to get votes for the sake of saving jobs and with the false hope of creating jobs. I have been consistently saying on this site how much I want to avoid the loss of manufacturing jobs in America. But we cannot achieve that through currency manipulation. Voters and unions are being fed a bunch of crap when they are told that protectionism has ever saved a job or that we will get the jobs back that we have lost or that new industries will pop up just because of it. When the big automakers complained to President Bush last November that they had a tough time selling their cars because of Japan’s unfair advantage from the “undervalued” Yen, I almost laughed and almost cried.

I evaluated the last five years from the time the USD index had a strong reading. Using the beginning of 2002 is also a good start date given that the Yen had its low back then. Additionally, I looked at the change in the currencies during two distinct periods of highs and lows - January 2002 to January 2005 to Today. Just pull up the charts on the USD index and the Japanese Yen/$ exchange rate and you’ll see why I picked those two dates.

From January 2002, until today, the Yen actually appreciated 8.5% relative to the dollar while the USD index declined 30%. From January 2002 until January 2005, the Yen appreciated 22% and it was only from the beginning of 2005 until today that the Yen has depreciated (17%) relative to the dollar. Meanwhile the USD index declined 31% from January 2002 to January 2005. Today’s USD index value is almost exactly where it was at the beginning of 2005.

So what? Well, just consider the automotive industry. How many tens of thousands of manufacturing jobs did Ford, Chrysler and GM cut since the beginning of 2002? How much of the job loss occured during the Yen’s period of appreciation in 2002, 2003 and 2004. And then how much since then? Furthermore, look at the unit sales figures for various manufacturers during those periods? What you will see is that US automotive manufacturers have had declining unit sales and job loss regardless of the change in the Yen.

If it is critical for Ford, GM and the new Chrysler to have the Yen appreciate relative to the dollar, why did they not do well during 2002, 2003 and 2004? If they could not succeed while the USD declined 30% since January 2002, how much lower does it need to go for them to achieve their results?

Despite years of Treasury secretaries Snow and Paulson telling everyone the administration has a strong dollar policy, we have a weak dollar. I keep wondering when one of our trading partners is going to tell us that our dollar is too weak. If we can whine about the Yen or Yuan, is it not fair for others to bitch about us?

I’ll end this post with one question..if the Yen appreciates relative to the dollar, will GM, Chrysler and Ford suspend all the tens of thousands of job cuts they are planning? I doubt it.