11/20/2004

Record Low Dollar

On Friday, Alan Greenspan warned that two of things that are weakening the dollar - trade deficit and budget deficit - need attention. How does the weak dollar affect us? Rates increase with a weak dollar, meaning the cost of money can affect both us as a consumer and our businesses. Weak rate also lead to a decrease of domestic competitions because goods can be produced cheaper overseas. More imports from Americans can make the problem even worse because it will lead to a larger trade deficit. U.S. companies that buy raw materials and parts overseas will see costs rise in dollar terms. But if they can't raise prices for their products, it could cut into profits and perhaps, hiring. The weak dollar has also hit U.S. consumers by putting upward pressure on oil prices.

Although there are plenty of negative affects from a weak dollar, there are a few positives. Such as, companies that sale overseas have a more competitive market and may see an increase in sales. U.S. tourism is another industry that can increase. Foreigners are more likely to visit since their currencies can buy more here, and U.S. vacationers who might travel abroad are more likely to stay home if dollar weakness makes overseas travel too expensive.

3 comments:

Dr. Tufte said...

-2 for multiple spelling and grammar mistakes in Miles' post.

-1 for spelling mistakes in Maudi's comment.

I wouldn't worry too much about this. Rates affect demanders and suppliers oppositely. Since the country is half demanders and half suppliers, this is a wash.

CMC said...

Dr. Tufte said he "wouldn't worry too much." The dollar was at a record low when this post was written. The writer was right on the money. It was a record low at .767 vs. the Euro but is now at .651. Perhaps there was something to worry about. And yes, I realize that everyone has 20/20 in retrospect.

Dr. Tufte said...

Has the proportion of problems you've faced as a result been in proportion to the change in value?

If not, I'd say this isn't that big a problem.