Since I wrote the column about the dollar’s potential demise I’ve gotten some feedback that I’d like to pass along. A reader who shall remain anonymous had this to say:
(…) you fail to recognize the value a low dollar value brings to the US economy. This value is twofold: the price of US goods and services exported overseas become more affordable and therefore increase; and the increasing price of foreign goods makes US produced products more attractive to US consumers. On a whole, the low value of the dollar should increase production and consumption of US goods.
The next point that I would like to make regards your assertion that the low value of the dollar is a byproduct of the war in Iraq. At no point do you provide any evidence, you simply jump to the conclusion without elaboration. Such a jump is dangerous, and indicates sheer bias on the part of the author.
(…) I am not arguing that a low dollar value is the best thing for the US economy. However, with all the discussions that took place over the course of the election cycle regarding the need to keep jobs in the US, a low dollar value is something that can do just that.
My response after the jump.
This is true, but only to some extent. What the writer of that letter assumes is that the dollar will be devalued but do so in a fashion that is still predictable. If the dollar crashes, and to me it looks like it is in the process of doing just that, nobody in their right mind would invest into the U.S. in any way or form. This can happen rather fast, as we saw in Argentina some years ago.
Argentina is also a good example as VW announced this week that they are thinking about opening a manufacturing plant in the U.S. They also have such a plant in Argentina in part because the favorable exchange rate.
So in some cases a weakened dollar can indeed create jobs. But on the whole the effects a crashing dollar would have on the U.S. social structure would be devastating.
I also may have some bias about the war in Iraq, to put it mildly, but it’s an undeniable fact that the exploding costs (no pun intended) caused by the situation in Iraq is adding to what is already the largest U.S. budget deficit in history.
