Tuesday, March 28, 2006

The High Cost of a Costly Dollar

Over at Working Life Jonathan Tasini has a clear, short, convincing argument about why we should let the value of the dollar deflate somewhat.
I just caught an item this morning in the Financial Times that reported that Senators Charles Schumer and Lindsey Graham had decided to postpone the bill they've wanted to push that would have imposed tariffs on China if it did not let its currency, the renminbi, rise faster in value. In theory, a rising renminbi would reduce China's trade surplus with the U.S. because goods made in China would then be more expensive.
There are three groups that benefit from a high dollar: tourists (when they travel abroad the dollar buys more), retailers like Wal-Mart (because a high dollar means they can get cheap goods from abroad) and Wall Street (a declining dollar would likely increase inflation, and those Wall Street types hate inflation--even a half a point difference means a lot of dough there).
Basically, if the dollar becomes slightly less valuable relative to other international currencies it will help american companies and workers. The problem, of course, is that has the potential to make goods more expensive which may offset the gained income from production. This stuff is ubercomplicated and i sure am glad there are experts to wade through it.


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