What does the weak dollar mean?

StockOrder · Joined: 28 Apr 2006 Posts: 11

The U.S. dollar really did hit a "historic" low yesterday, says Ben Steverman in BusinessWeek.com. But blaming the Chinese officials who said China should diversify its foreign currency stockpiles is silly -- their views hold as much power as "the mayor of Milwaukee making comments on the war in Iraq." Instead we should "look at economic fundamentals": the bond markets are expecting "a deep slowdown in the U.S.," so investors are switching to "other currencies that will give them better returns." The dollar will probably stay low for "quite a while," so "Americans will have to get over the embarrassment of a weak currency."

Well "so far, Americans have made out quite well from the decline in the dollar," says Randall Forsyth in Barron's Online. "Forget the economics textbooks." The 9 percent drop in the dollar this year has effectively cut our foreign debt by $155 billion, and it is doing "relatively little to restrain imports." Plus, it is good for our foreign investments, be they a multinational's new overseas factory or an individual's international mutual fund. Besides, the dollar still has some way to fall: the greenback hit "its nadir against the Japanese yen in 1995," and was at its weakest against gold in 1980.

The falling dollar is being "spun by the Goldilocks crowd to be a positive event because of its impact on exports," says Herb Greenberg in SeekingAlpha.com. But it's really nothing more than "a sign of weakness by the U.S." The greenback is "now the economic equivalent of the Blue Light Special, and we all know what happened to K-mart." And as Stephen Roach at Morgan Stanley noted two months ago: "No nation has ever devalued itself into prosperity."

info · Joined: 07 Feb 2005 Posts: 23

I read somewhere that Airbus finds the US$ exhange rate is threatening their existence. Now that the Dollar and Euro are priced this way and Airbus is worried... just wait until the US has a Universal Healthcare system that removes the cost of healthcare from goods produced and moves to a VAT like Europe has.

All things being equal, Europe's Airbuses will be 15 or 20% more expensive in the US, US's Boeings will be 15 or 20% less expensive in Europe. It will be interesting when US manufacturers can compete without disadvantageous tax policy. Wink

Now that the US has brought the rest of the world up and the US down through "free trade" agreements, it will be interesting to see a level playing field in a global economy.

The price of oil will force the US to innovate in solar technologies and the US industrial base will migrate to the desert southwest where the power will be... The US will build a HUGE pipeline to move not oil, but to move seawater there for desalinization processing as part of the solar energy cycle perhaps.

Wouldn't it be funny 5 or 10 years from now if the US is regarded as the up and coming manufacturer in the world? LOL Laughing

Time will tell... Rolling Eyes

StockTrader1 · Joined: 21 Aug 2007 Posts: 2

US oil companies are waiting for $200 per barrel oil and waiting for Saudi oil output to start to decrease.
Then they will unleash the immense supply of shale-based oil in the western states. Similar to what is happening with oil sands in Canada (but larger scale).

The US price of gas will need to go to $7.50 per gallon so the public will squash the environmentalists.