Ever since the first time I went abroad, I've watched the currency tables in the newspaper. I've seen the pound at $1.80 and the euro at $1.20. Now, the pound is at $2, which is unfortunate for me, since I will be studying in the UK next semester. Even the Canadian dollar is just about on par with the American. I don't know much about economics, so I'd like to open discussion regarding why the exchange rate for the dollar is so poor and what, if anything, we can do as consumers to combat this.
Correct me if I'm wrong, but it's my understanding that the dollar is falling partially due to our trade deficit--we are importing more than we are exporting--and partially due to our debt. It seems to me that it would be beneficial for the economy if U. S. companies produced more goods on U. S. soil and we were a bit more insular when it came to using domestic goods.
Apparently international faith in the dollar has fallen, and I'm not going to speculate about the reasons for that, so it's being traded for other currencies with the expectation that it will continue to drop in value. So what do you think? Why is this happening? Can we do anything about it?
• 
• 
• 
• 
• 
First of all, great post and thanks for opening up discussion on this topic. Also, congrats on studying in the UK next semester--sounds like fun.
Well, as an economics major, I have a few answers for you. First of all, you're right on: there's a negative correlation between the value of the dollar and the ammount of our trade defecit. In other words, as our trade deficits go up, the value of our dollars go down, and vice versa.
Another interesting thing is that trade defecits cause a loss of jobs. 1 in 5 American jobs is tied in some way to international trade, and for every 1 billion dollars in trade defecit, we lose 20 thousand domestic jobs. Not a pretty picture.
Solutions? Well, simple: Export more, import less. Or simply import less and wait for inflation to take care of the problem. So, how can the U.S. export more? Well, we have to have competitive and low prices in the global marketplace. And frankly, that's just not happening right now--not when Indian laborers will work for $2 an hour, and all of our goods can be purchased for dirt cheap from China, Canada, etc. Not to mention that we import almost all of our oil too.
In the long run, America will have to find her "niche" in the global marketplace. We used to really lead the technology movement, but now we're lagging behind East Asia.
Unfortunately, the result of this is that the dollar crashes. What can I say; it's not easy being green. :)
I remember how fun it was, years ago, when we could go up to Canada and get like $1.50 for each of our dollars. Not so much anymore!
Hope I could help. America just needs to find its industry niche again. Our "melting pot" of a country has been a true disadvantage when it comes to our industry, economy, and jobs.
Time, entrepreneurship, and expansionary policies should solve the problem in the long run. In the mean time, I'll postpone my trip up to Canada. :)
Allison
"Be the change you want to see in the world" ~Mahatma Gandhi
"In the long run, America will have to find her "niche" in the global marketplace. We used to really lead the technology movement, but now we're lagging behind East Asia."
Perhaps she's finding it in warfare? Scary thought.