Tuesday, April 17, 2007

Weak dollar blues

The UK pound cracked through the $2 barrier today. It costs $1.35+ per Euro. When The Monk and the Monkette went to Scotland in '04, we took a beating because the exchange rate was $1.80 to the pound. When we went to Ireland in '02, we received 1.10-1.15 Euros to the dollar.

There is a huge psychological benefit to having a strong currency. The perception helps internationally, as demand for dollars increases thereby leading other nations to obtain dollars -- which means the US essentially EXPORTS them. The notion that a weak dollar makes American goods more attractive and thereby lowers trade deficits is basically untrue -- the US trade gaps through the Clinton years (strong dollar) and the Bush years (weak dollar) have not depended on exchange rates nearly as much as they have on other factors. Our trade deficits have reached their highest points under the current president and he's followed a weak dollar policy from day one.

The weak dollar policy is, in effect, protectionist. The weak dollar raises the price of imports (including OIL), lowers the costs of US-made goods, and insulates US goods from foreign competition thereby stifling innovation and quality improvement. In other words, there is no manner in which the weak dollar policy helps US consumers.

The Monk travels abroad often enough to like the strong dollar. But there are other benefits, both tangible and intangible. I'd like to have those again.

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