Why we shouldn’t Worry about a Weak us Dollar

As stated many times in this forum, the biggest risk to a weak US dollar is the resulting inflation. It’s the Fed’s job to figure that out. Let’s say that doesn’t happen. So, what’s the problem? The mass media will tell you about how expensive to go to Europe on vacation. There are three ways to solve that: don’t go; economize; or be prepared to spend more. Is this really a problem. Of course not! Here’s a better idea, go on vacation in the United States. The money stays here, helps employ people here, and you don’t have to go through the hassle of getting a passport, a real problem these days. Foreign tourists, spurred on by a weak dollar, are coming here in droves despite all the complaints about security, visas, etc. They are spending money too, buying things here that are cheaper even without the currency adjustment. If you need immediate evidence of this, take a look inside any book jacket and see the difference between the US and Canadian price. Hop in your car and drive up to the Woodbury Common Outlets north of New York City and watch the bus loads of Asian tourists disembarking on shopping junkets (For further proof, the local airport there is gearing up to accept international charter flights specifically for this purpose).

Some of the above is tongue-in-cheek, but in all seriousness, let someone else worry about the dollar. For decades, the world benefited from a strong dollar, exporting anything and everything to the US. These countries decry the low US savings rate despite the fact it is the main driver of their export-based economies. Export growth is triple the rate of import growth. This is occurring without a strong national policy championing exports as exists in other countries. There is even serious talk of exporting ethanol from the US now until domestic distribution infrastructure catches up with supply increases. (As an aside, the price of ethanol has dropped 40% from its peak. This will help the inflation numbers going forward, not so much on the energy side but on the food side as production costs, farmers a big users of ethanol, and supplies balance out).

These foreign countries should push to spur domestic demand rather than rely on weak currencies to bail them out. The US dollar is weaker than it was, but there isn’t anyone seriously stating that it is undervalued at this point. In fact, against dollar-pegged currencies, like China, it has a ways to go.