Monday, November 29, 2004

Weak dollar: So what?

James Flanigan, in the LA Times, explains why a weak dollar is not the threat to US well-being that some would have us believe.

When the dollar is weak, other currencies are stronger and goods from other countries are more expensive in the US. That means fewer foreign goods are bought. It also means more domestic goods are sold, since a weaker dollar means our stuff becomes cheaper in other countries. You'd think those who worry about our trade deficit would be thrilled.

Frankly, there seems to be no particular relation between the strength of the dollar and the strength of the economy. Indeed, since a weak dollar means people in other countries buy more of our stuff, it may make for a strong economy and lots of growth.

As I've noted elsewhere, the last time the dollar was this weak was during the boom in the 1990s. It peaked in strength, in fact, during the recession in 2001-2002.

Maybe I should buy more stocks.


Anonymous said...

That might be fine and dandy if you are a domestic manufacturer, but if you have savings in a dollar denominated asset (like a CD or savings account) then you lose buying power as the dollar devalues. It's the same thing as inflation.

Anonymous said...

Only if you plan on using your CD to buy foreign assets.