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Its not my week to post but I thought this article was worthy of discussion. Link
The U.S dollar is continuing to depreciate against a number of currencies particularly the Australian dollar. (Australia's economy is incredibly strong right now and they have high interest rates making the currency a strong candidate for the carry trade).
I wanted to get the discussion going on whether you perceive the weakness in the U.S dollar as good or bad for the economy? Also, do you think this is the start of a long term change for the value of the dollar? If so what are the consequences?
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I'm not at all sure whether a depreciating dollar will be good or bad for our economy but I do think its possible that this could signal a long term trend. I read recently that China could surpass the U.S in real economic output by as soon as 2016 and that even the conservative forecasts are only a few years later. A change in global economic leadership could change how the world views the dollar. If it is not seen as the safest most dependable currency it could move to a lower relative valuation permanently.
ReplyDeleteI think a depreciating dollar would be good for our economy because that will make things cheaper to make in the US. I feel like we need to start making things here more. I think that bit about Australia's economy was pretty sweet. Thanks. I think it is interesting that they are doing so well.
ReplyDeleteI know there are benefits and drawbacks for a strong or weak dollar. But, personally, I am just way more comfortable with a strong dollar. Not sure why, maybe just because the word "strong" is more appealing to me than "weak".
ReplyDeleteOn a separate note though, I recently read an article (unfortunately I can't find it, otherwise I would post it) that made the claim that the US is better off with a depreciating dollar. The best way I can explain his argument is to compare it to the 1970s inflation era. So, in the 70s when people took out loans they were getting a really good deal, because inflation essentially paid their loans for them. With regard to the strength of the dollar, the author was making the point that there less our dollar is worth, the less in debt we technically are. He went on to advise a way to pay of the deficit using currency investment techniques - a little over my head, but I found it really interesting.
I disagree with Jennifer's statement about needing to produce more goods in the U.S. In International Trade we learned that international trade benefits both/all trading parties. We don't produce certain goods in the U.S. because other countries can make the same product at a cheaper price. By purchasing those products from another country, we save money and still have those resources left in the U.S. to produce other things. Therefore, producing certain goods in the U.S. is not always the best option.
ReplyDeleteThe depreciating dollar can be both good and bad-good because it makes our products cheaper to international consumers, but bad because it then requires more dollars for American consumers to buy international goods. Either way, I don't see the depreciating dollar being a long term trend-it's got to strengthen again at some point.
I think the dollar won't depreciate at the value it did the last 10 years. The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, their products will cost more in the U.S., and their economies will suffer. Right now, it's still in their best interest to hold onto their dollar reserves. So as long as we remain China's best customer and they stay in our good graces, I think the US dollar will be just fine.
ReplyDeleteThe weak dollar may not be a bad thing, as the article points out, as a softer economy may provide opportunities for slow and steady growth.
ReplyDeleteI see both sides to this argument but I would say that a depreciating dollar is bad for us in the short run but can help us in the long run. Cheaper US dollar means an increase in exports, which means more jobs for US workers, which helps out our economy in the long run. I don't see this being the start of a long term trend as far as the depreciation of the US dollar because currencies seem to go through these patterns every few years. Ankur had a good point, so many large countries depend on the US for their economic stability that we shouldn't have to panic too much. It reminds me of a "too big to fail" mentality of some banks in the US...
ReplyDeleteI think Mannor makes a good point but if those large countries find someone else to depend on for economic stability (China or other BRIC) then we might have some serious long term issues.
ReplyDeleteAltough there are pros and cons to this issue, I naturally want to think that a stronger US dollar is better. There are clearly many benefits here domestically as far as the depreciation of the US dollar is concerned, but I just don't see this as a long-term trend. As Ankur mentioned, massive companies worldwide depend on the US dollar for their own economic stability...which to me says we have no reason to worry. This is just part of the normal fluctuation cycle. As Manor mentioned the US dollar has that "too big to fail" mentality, too many people around the world rely on it.
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