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The long term effects of a weak dollar.

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Malthus
User ID: 458358
7/17/2008 6:19 AM
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The long term effects of a weak dollar.

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For quite a number of years, the US dollar has been significantly overvalued, leading the way for the American
economy to be able to swap its own goods for an unreasonably large amount of foreign produced goods.

That was the good news. The bad news we all know; twin deficits. Huge. Americans went on a spending spree historians will marvel at for the next 100 years. And they bought crap (ie stuff that doesn't produce anything, but are worthless 1 min to 5 years after it has been bought).

But now the dollar is way way down. Domestically produced goods now stand a chance against foreign goods. Exports will rise, slowly, but it takes time to increase market shares. The bad news here is of course a one-time shift upwards in prices. Huge spike, but it is a one-time shift. Once prices are up, thats where they stay. Any additional price inflation will be due to imported inflation, not caused by the decline of the dollar.

For the first time in a couple of decades, maybe more, US producers now have the chance to compete on a wide range of products impossible just a year or two ago. Importsubstitution will also play a vital role. More jobs will be created, and the foundation for a more sound economic system is made. This will not happen overnight, but take literally years.

New businesses will be built, reversing a lot of the trend of shipping everything from abroad. There will come a day when there will be steel workers again, industry, and something actually made, not just moving paper.

When the price is right. That would be the dollar dropping just a little further, and staying there.

And frankly, this needs to happen. Running up a $2B deficit every day just can't continue for much longer.

And the effect on equities? In the short run, probably not very good. In the long run? It will be the cause of the next great bull market.

Anonymous Coward
User ID: 453288
7/17/2008 9:18 AM

Re: The long term effects of a weak dollar.	Quote
A refreshing outlook and I hope you're right!

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