Macro Economic Trends and Risks
The Weak Dollar

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By huddaman
September 24, 2007

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I just returned from the UK, and I felt poor and small. The dollar is so weak now; it's almost as if they look down upon it.

Canadian dollar has achieved parity, and if this continues, the Canadian dollar will get stronger than the US. Good thing, I didn't cash out my change left over from my last visit to Canada. It's worth more now.

The federal policy of weak dollar has put me and the US to shame.

I asked my colleagues in London, (I work in the US office), whether they are happy to have a strong currency. The answer was obviously a yes.

Everyone talks about how weaker dollar can boost exports and discourage imports, but come on, that is just one side of the coin, isn't it? If you truly believe weaker dollar is good, then would you support paying 50 times for your vacation if you were to goto UK or Canada? Or 10 times more for oil denominated in dollars? If dollar weakens more, obviously we will have to pay more for oil as opposed to country whose currency is strengthening, wouldn't it.

For e.g., 40 GBP could fetch one barrel of oil, whereas 80 USD fetches the same barrel. However, people in UK make the same money dollar for pound. For e.g, if you were a teacher in UK, you could make GBP40k, whereas a teacher in US could make USD45k. Grocery for 2 in UK costs GBP200 whereas in US costs USD400.

If the dollar gets weaker, sure our goods will look cheaper to the outside world, but cost of making those goods, or importing raw material for manufacturing those goods will rise as dollar in the international market wouldn't be able to buy the same raw and material at lower prices. Think Oil, wheat, outsourced manpower, etc.; we will continue to import no matter what.

So, my question is, why is the US government not ready to strengthen the dollar? (Please don't give me the old clich� answer, i.e. to discourage imports and encourage exports.)