The drop of the dollar has had its good and bad points -

Bad- When I need to buy cheap lead laden Chinese toys for my nieces and nephews its more expensive.

Good- After years of listening to people complain about the trade deficit it declined last month:

WASHINGTON (AP) — The U.S. trade deficit fell to the lowest level in seven months, helped by record-high sales of American products and the declining value of the dollar. The deficit with China declined as imports edged down slightly following a string of high-profile recalls.

…

The politically sensitive trade deficit with China fell by 5.3 percent to $22.5 billion. U.S. exports were up, led by increased sales of aircraft and soybeans, while imports slipped a slight 0.7 percent. The decline in imports occurred after a series of recalls of tainted products from toys with lead paint to toothpaste and unsafe tires.

However, the small drop came in such areas as computers and furniture, where there have not been highly publicized recalls. Imports of toys from China actually rose as American retailers stocked their shelves for Christmas.

The boom in U.S. exports is helping to cushion the U.S. economy from the adverse effects of the housing bust and a severe credit crunch. Overseas demand for U.S. goods is being helped by a falling value of the dollar against many other currencies. That development pushes up the cost of foreign vacations and imports for American consumers but makes U.S. products cheaper in foreign markets.

source: Yahoo Finance

It is becoming more expensive for countries to peg their currency to an artificially low rate against the dollar as demonstrated by Kuwaits recent depegging. This initially sounds bad until you realize that one of the countries which pegs their currency to the dollar is [ta da] China. If they have to allow their currency to rise naturally imports from China as well as the cost manufacturing there will rise. This will lead to a further decrease in the dreaded Chinese Trade Deficit.

Foreign labor becomes more expensive. The BBC reported yesterday that the Rupee has risen 12% this year against the dollar making it more expensive for US firms to outsource call centers and IT development.

There are downsides to the dollars decline. Inflation may increase outside the energy and food ares where it has been mostly confined and this may drive a decrease in consumer spending, but for driving American exports and equalizing trade I would say it is mostly positive.

Dollar, Economy, Trade

This entry was posted on Thursday, October 11th, 2007 at 7:36 am by Chad and is filed under Brilliant, but uncategorizable. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.