It's a waste to worry about the dollar
About the only thing that didn't do well in the markets today was the dollar, and the general perception is that's a bad thing. But commentator Paul Kedrosky says it might be time to readjust expectations.
Kauffman Foundation Senior Fellow Paul Kedrosky. (Courtesy of Paul Kedrosky)
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TEXT OF COMMENTARY
Kai Ryssdal: About the only thing that didn't do well in the markets today was the dollar. Stocks rose. Oil and gold were up. The greenback, however, continued its recent slide. The general perception is that that's a bad thing. Commentator Paul Kedrosky says it might be time to re-adjust expectations.
PAUL KEDROSKY: The U.S. dollar isn't doing all that bad. It has actually climbed in the last year against a bunch of currencies. Well, some. All right, maybe eight: the Argentinian peso, the Algerian dinar, the Fiji dollar, the Ghana cedi (which we're clobbering mercilessly), the Jamaican dollar, the Pakistani rupee, the Sri Lankan rupee, and, of course, the Vietnamese dong.
All right, we're not keeping great currency company. That is why plenty of people are unhappy about the dollar's decline. Some worry that it will mean inflation and a diminished U.S. standard of living.
Others see it as a loss of status. As the dollar sinks, there's fear that cabals of U.S.-hating merchants will move to price major commodities, like oil, in other currencies, making the dollar sink further.
The worry is wasted. Yes, a lower dollar is going to cause some prices to go up. And an uncontrolled decline in the dollar would be calamitous for funding the giant U.S. deficit. But both remain unlikely. For all its fiscal flaws, this country is in better financial shape than many of its largest trading partners, like Japan.
A lower dollar, to a point, is actually good for U.S. trade. It makes U.S. exports cheaper and more competitive, which increases sales. That's important if we want to cut down our trade deficit and try to get this economy healthy again.
Sure, given China's loose currency peg a lower dollar won't slash our huge trade deficit with that country. But the weak dollar is already helping raise exports to every other top trading partner, from Canada on down.
This country might like a higher dollar -- it feels so good -- but it needs a lower one right now. More exports will take pressure off U.S. consumers. It's time someone else drove this economy for awhile.
RYSSDAL: Paul Kedrosky is an economist in San Diego. His blog is called "Infectious Greed."
Comments
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From Milan, MI, 11/12/2009
"Worry" that a falling dollar "will" mean inflation? A falling dollar necessarily by definition means inflation in the prices of foreign goods (and everything that is produced using foreign goods).
11/11/2009
If America's intentions in the present, are to lower its debt to Clinton levels again, then a lower-value dollar won't help--especially if tax income isn't there to help pay back Treasury bills coming due, etc.
If the goal is to bring back the American economy by consumers spending cash, guess what? In the recent past, we wern't spending cash--we didn't have it in our paychecks. Instead, we floated the economy on our credit cards.
Do we need to discuss the validity of that idea?
11/10/2009
A sinking dollar helps US workers but not necessarily US consumers as Mr. Kedrosky stated. There is overlap in these two segments but they are not identical.
From IL, 11/10/2009
Paul is completely missing the point because a weakening dollar will cause the loss of a standard for living for the may aging Americans that are just getting to their golden years. They are the once that are more into more liquid assets as they move closer to retirements and now after years of hard work just as they are about to retire they realize that they have to work harder longer as the money that they have saved up does not go as far any more.
Then again this country has had a long history of not caring for hardworking retirees.
From Atlanta, GA, 11/10/2009
Mr. Kedrosky's position seem wrong. The U.S. is a net importer (our balnace of trade is negative), so if the dollar weakens, it will raise the aggregate costs. This would only change if the dollar weakens so far that the trade balance flips, which seems unlikely to me.
11/10/2009
Thank you for finding a real life economist.
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