The American dollar is worth 93 cents in Canadian currency. That's embarrassing. Most foreign currencies are totally dominating the dollar and believe me, it hurts--I'm currently living in Edinburgh on money I saved over the summer, and the exchange rate is about $2.15 to one GBP.
The frustrating thing is that there seems to be nothing that we as consumers (and especially as students!) can do about it. The dollar is falling because of the poor housing market and low interest rates. If things improve, which I've read they are supposed to do next spring, they are not going to improve by much. The dollar is not going to be even close to compatible with the euro or the pound.
I wonder if we weren't spending so much money on the war, if we weren't importing so much from Asia, if people weren't living beyond their means and so taking out huge loans and failing to repay them, then our economy would be better. I've never taken economics, so I don't know: enlighten me. All I know is that the pound sterling packs a punch to my wallet and I can definitely foresee the dollar's poor exchange rate dealing huge blows to study-abroad programs.
Yeah, I went to Canada over the summer and it was $1.03 U.S. to $1 then. Its amazing how much our currency has dropped over the years. I wouldn't really be able to tell you anything in economics, for I as well, haven't taken anything in that subject. I don't think that there is much we can do, except for hope that it will slowly get better over time, and hopefully it will!
So here we go: Yes a weak dollar sucks when you are trying to buy things from other countries, or living in another country. But a weak dollar isn’t necessarily a bad thing. When the dollar is weak imports decrease and exports increase, which might help us to make a dent (not likely) in the massive current account balance that the US is running. A weak dollar will actually help us to not import so much from Asia (now whether or not that is good is another matter entirely).
Yes things would probably be better if people weren’t taking out huge loans and living beyond their means, but probably not the way you think. The dollar would probably still be falling, but other things wouldn’t be as much of a problem.
Yes the sub-prime mortgage fiasco and the sluggish housing market have something to do with the falling dollar, but there are many other factors at play. Currency markets work just like everything else, there is a certain supply and a certain demand and they work together to determine the price and quantity of a good that will be traded on the market. It seems odd to think of a market determining the value of a dollar, which is of course valued at a dollar, but that’s the way it works. If you want to do business with Farawayland then you have to sell your dollars on the market to buy Farawayland’s currency.
I would generally agree with Magnificentme, only expand a little bit.
The weak dollar is a really GOOD thing for our economy right now. The US has a serious consumption problem, and we're starting to become the consumers instead of the producers. That's not a good thing, and the weak dollar adds incentive for exports, because other countries come here to purchase their goods when their form of currency is worth more.
Incentive for exporting is incentive for domestic manufacturing, and manufacturing strengthens the economy. It will help us keep some businesses here that may have been considering leaving; not all, mind you, because many are still looking for cheap labor elsewhere.
The weak dollar also brings tourists here to the US, because they get a better exchange rate for their currency then elsewhere and can afford a better vacation. Also good; it's better to have them spend their money here than elsewhere, and we want more people visiting and purchasing.
So, no, the weak dollar is not really a negative thing for our country right now, and it actually could help us reduce our budget deficit if we play our cards right. The idea is to not overtax exports, but maintain a level that keeps the money rolling in.
If you view the US economy as a completely separate entity (which is preposterous) a weak dollar is definitely a good thing at the moment. It has, however, been hypothesized that a weak dollar may cause all kinds of issues for the global economy. A major driving factor in the global economy for the last several years has been America's obsessive consumption and China's equally fevered production. A weak dollar will slow American consumption, and lead to a global recession unless some other country steps in to pick up the slack. Furthermore, the level of the US's account balance may cause some issues. Other countries are only too happy to finance the US account deficit (not talking about the budget deficit, these are different things) with a strong dollar and the assumption that the US economy is a behemoth, but the sliding dollar is making investors nervous. Furthermore, a huge number of developing countries keep their monetary reserves as dollars because it has been the most stable currency. If they start to panic and sell their dollars then we'll really see the dollar plummet, not to mention the catastrophic implications that could have.
Unfortunately things aren't generally black and white. Some impacts of a weak dollar are clearly beneficial, while others... We'll just have to see what happens.
The US economy is a seperate entity. You can't control the economy like you can control the governmnet. Yes a weak dollar is good for now, but what about when the war ends and billions of billions of dollars of profit are suddenly gone? It has already been predidcted by numerous economists that the economy is nearing a state of another recession, something I've said before they even did.
There are certainly ways to control the economy through monetary and fiscal policies. The Federal Reserve is in existence for the sole purpose of controlling the US money supply and through it the economy. The central bankers spend a lot of time working to soften recessions, cool inflation, and generally keep the economy stable. Yes, we are in (or going in to) a recession, but the economy is cyclical in nature and continuously travels through periods of up and down. The big issue that we are faced with is not the recession it’s self but how large it will be.
Furthermore, any country that views its economy as completely independent will quickly find its self in trouble. With the increase in globalization we have become inseparably intertwined; keeping other countries actions and reactions in mind is more important now than ever before. And when speaking about the foreign exchange markets everything is global.
Unfortunately I don’t really understand where you are going with this talk about the war ending and profit disappearing. War does increase government spending, and if government spending decreases GDP does as well. But on the other hand a decrease in government spending also means more investment opportunities for companies (increase in GDP).
A weak dollar also increases GDP through an increase in exports and a decrease in imports.
The money supply, yes, but not the economy. I talking from the Austrian and Chicago School Economic models, which see the economy as a seperate entity that cannot be controlled. Socialism and Communism try to controll the economy and I know we've all seen how well that work, or lack of work i should say. Yes it cycles like nature because it is an entity like nature, it will do what it will and it give less than a damn abotu what want it to do.
Economy as a whole is a seperate entity, globalization uses multiple economies and they become one so to speak. It is still a seperate entity. Globalization isn't necessarily a good thing either.
War increases government spending on military equipment from companies in the economy. Once the war ends and the companies are back down to normal levels and the dollar is still weak, it collapes. What are you assuming is holding up the economy? Imports and exports have reversed, exports have increased and imports decreased like you said, but they're relavtively the same. The profit from the war is holding up the economy, when it's done what's left to hold it up? The most volitale time for a countries economy is after a war has ended, it either sinks or floats.
Also we still use keyneysian or neoclassical economics while most of the world has embraced chicago.