If falling US Dollar is such a bad thing, then why are the Canadians fretting over their stronger dollar?

Question

http://online.wsj.com/article/SB119482529985889500.html?mod=googlenews_wsj

In fact, if a strong dollar was such a good thing, then how come people have been complaining for decades about other nations keeping their currency so weak?

Maybe there's an advantage to having a weak currency?

Wow! A lot of closed minds here.

Probably the biggest advantage is that a weaker currency will encourage less imports of foreign made goods, and higher exports of American made goods. Americans will also be able to buy more competitively priced goods made in America. This will lower the trade deficit everyone has been complaining about for the last 25 years.

Another advantage is tourism. A weaker dollar makes vacationing in Europe that much more attractive.

Look, I'm not saying it's a total rosy scenario. But it's not all doom and gloom either. A strong or weak dollar carries certain advantages and disadvantages.

Oops. I meant vacationing in the USA is more likely. Not Europe.

To GEM - no way we are in a recession! Last two quarters have seen strong economic growth. A recession is defined as 2 consecutive negative quarters of real GDP.

We may be headed toward a recession or an economic slowdown. In fact I think an economic slowdown is likely. Also over 13 million americans are employed in manufacturing currently. Sure we must be still making something!

Answer 1

In economics, to assume high as always good and low as always bad is an incorrect assertion. Economics is a balancing of things. You try to keep things moderate in a sense that moderation will allow things to keep going the right way. Economics is not an exact science, that is why it is considered a social science.

As far as macro policy goes, inflation, money supply, and unemployment are the big things that affact everything as a whole.

A strong currency, any, means other countries are less likely to buy your goods (making a trade deficit larger for Canada); the cost of money is more expensive to borrow (business cannot grow as efficiently - and while government can by more services with tax money the people selling those sell it for more so that evens out while interests baring entities and investments, bonds per se cost more making expansion harder for government's agenda), foreign investment decreases both entrepuenuership and stock market because it is too expensive; and it creates deflation which lowers prices and squeezes corporate progits which then lowers stock gains.

It all depends on what the golas are of a certain society. Some people devaule or value things from high to low on purpuse depending on their goals.

Monetary ploicy is an art at best and it is very interesting. It changes a lot to given all the factors involved in any given situation. There is no black and white answer acroos the board.

What America needs now is Ron Paul's monetary policies. He is the only polician who actually knows something. Smart guy. Check him out.

Vote Ron Paul 2008!

Answer 2

The advantage to a weaker dollar is that your products are less expensive.

However, the dollar was never weaker than the canadian dollar until just recently. The Fed just lowered rates two weeks ago and I feel that hurt the dollar.

The currency market works much the same as any commodity market. If there is a demand for the dollar than it will be strong. The demand is not there because we have a large deficit and no reasonable expectation to see that deficit decrease in the near future.

Adding to the problem is that a large portion of our debt is being held by China. They also have extensive currency holdings in the American dollar that they have been using to hold their own currency down. (The Chinese currency is tied to the american dollar) It keeps the cost of their goods down.

If they choose to tie into the Euro and sell off the dollar that could cause an economic downturn of gigantic proportions. Stay tuned.

We do need to strengthen the dollar by decreasing the deficit. That can be done several ways, but enough of the economic lessons for now.

Answer 3

Canadians are worried because America is their biggest customer.

So, now their products are costing us more, we quit buying Canadian made and start buying more crap from Asia.

The cycle continues...

edit-I also want to add to all these people that think this downturn is similar to the last time this happened (late 70s/early 80s). There is a MAJOR difference this time my friends. When the dollar devalued back then, we still had American factories and American jobs. People were just laid off. This time around most Americans have no clue that a HUGE portion of our economy has disappeared over the past 3-5 years. Over 3 MILLION jobs have been lost in manufacturing alone. These people were not "laid off". The factories are GONE and the Chinese have come over and bought the equipment.

We don't have much to export anymore, so the devalued dollar won't help us as much as the "experts" keep saying it will.

The government and the media have been feeding us a line of bull with the "service economy". A service economy only works if there are people who work and have money to spend.

There are quite a few things playing into this that the average American is totally ignorant of. And none of them are good.

We are IN a recession, and I think a depression is bearing down fast. The housing debacle and rising gas/utilities costs are only the final nails in the coffin.

Answer 4

There are good and bad things. The cause and effect of these are also not immediately clear.

Good things: encourages Americans to buy domestic goods and foreigners to buy American exports.

Bad: Increases the cost of imports. One very important import is OIL.

If the dollar depreciates it causes the trade deficit to increase in the short term as imports get expensive. About a year after that, people begin to change their tastes and the deficit gets smaller and continues on this path. This is called a J curve.

The negatives are inflation. A weak dollar makes oil expensive, which causes inflation throughout our economy. This is a serious concern.

Answer 5

Obviously, a weak dollar means we can sell more abroad, if we had things to sell.

But we are currently the largest borrower in the world, and if people expect the dollar to fall, they will think twice about investing here, unless the interest rate rises. So a falling dollar will put pressure on the FED to keep interest rates higher than otherwise, in order to convince the Chinese from lending us money.

Another thing that puts pressure on the interest rates is inflation, which can be caused by rising import prices. Although one might think that consumers could substitute toward domestic goods, we no longer have any capacity to make retail goods at all.

One reason why a falling dollar 'looks bad', is because it means people no longer have confidence in your economy. A reduction in demand for your currency could be caused by a reduction in aggregate demand caused by recession, a reduction in supply caused by a fall in technological growth, or fears of political or future uncertainty.

Answer 6

The replace cost relies upon on the commerce stability. the U. S. imports oil and Canada exports it. so whilst the call for for oil fell because of slowing financial device interior the U. S. the fee of Oil fell and the greenback quantity of imports for the U. S. and and exports from Canada declined, and the commerce stability shifted and so did the replace cost. It replaced into the opposite of the approach that led to the Canadian greenback to upward thrust whilst oil costs have been increasing.

Answer 7

You probably think high deficits are good too.
Conservatives like the dollar to be sort of like them -- weak.

It's like a summer movie: the incredible shrinking dollar!

The dollar's weak value comes with disadvantages for US consumers. Now it's actually more expensive for Americans to travel abroad. Italian leather, Belgian chocolates, and English cheddar cost more. In addition, many Americans may find they have a new boss -- one who is based overseas or relocating to the States.

The dollar is the prime currency used to trade oil internationally, and a weaker dollar props up crude oil prices, thus keeping gas prices high.

Answer 8

Socialist/communist nations don't have to worry about what their dollar is worth, because they can always just pay their slaves a bit more to cover their valuless dollar.
In a capitalist nation, it doesn't work quite the same, because no one wants to pay their slaves more to cover what their income doesn't.

The only value money truely has to a laborer, is what they can buy. If everything is made somewhere else, it costs them more. now is this really any different to them, than having a strong dollar and paying a little more in taxes?

Answer 9

Canadian companies who have contracts with American companies are filing for credit protection. It's the Canadian version of bankruptcy.
Because they can't change the contracts to accomodate for the weaker dollar, they are all going belly up.
Deutsche Bank is having a similar problem as we speak.
Watch closely. It could have global implications.

Answer 10

well you used up all my ammo in your comments.let me just suffice to say. greenspan worked for ayn rand before becoming fed chairman,bernake doesn't pass gas without talking to greenspan(economic upheaval could result).these guys know more about money than god knows about little green apples.ayn literally wrote the book on capitalism so i trust her protege' and his.