Issue of the week: What’s so bad about a falling dollar?

Republicans have a new cudgel for bashing President Obama, said Edward Luce and Krishna Guha in the Financial Times. They’re blaming him for the plunge in the value of the dollar—which has been down 15 percent against the euro in recent weeks, and last week traded at its lowest point against the yen since December 2008. The greenback’s fall, Republicans say, is “evidence of waning U.S. power.” That’s the subtext of a Facebook posting by one of the Republican Party’s de facto leaders, former vice presidential candidate Sarah Palin, who linked the dollar’s sharp decline to “our out-of-control debt” and dependence on foreign oil. It’s not only Republicans who think so, said The Wall Street Journal in an editorial. The action in the currency markets “is a daily global vote on U.S. economic policy.” Quite plainly, currency traders around the world have no faith in U.S. policy, and for good reason. Under Obama, the U.S. budget deficit is exploding and our markets are “becoming less inviting to global capital.” So logically enough, traders are dumping dollars.

Politics has nothing to do with the dollar’s “recent feebleness,” said the Financial Times. The currency markets are simply returning to normal. During the darkest days of the financial crisis, investors around the world sought safety in the dollar and U.S. Treasury bonds; as a result, the dollar’s value rose 12.6 percent between August 2007 and spring of this year. Now that the storm has passed, investors are once again buying other currencies, and the greenback is “roughly where it was as the crisis was emerging.” We understand that politicians of all stripes tend to see currencies as “national virility symbols,” but the dollar’s decline is really a sign that the world’s other economies are recovering. It “should neither be feared nor obstructed.”

In fact, said Irwin Kellner in Marketwatch.com, “a weak dollar at this point in our business cycle is good for what ails us.” The U.S. economy got into trouble because we imported too many foreign goods and services while exporting too few. A falling dollar helps reverse that trend by making imports more expensive and making our exports more affordable to the rest of the world. A weak dollar also helps create jobs at home, by reducing the need for U.S. companies to outsource to cheaper labor markets. “Indeed, if the dollar gets weak enough, some jobs might be repatriated.” That’s hardly a cause for alarm.

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A weak dollar is good news for the rest of the world’s economies, too, said Wolfgang Münchau in the Financial Times. Europe, especially, suffers from the reverse of America’s problem: It exports too much and imports too little. A weaker dollar and a stronger euro neatly solve that puzzle, with no need for heavy-handed government policies to correct the chronic imbalance. “The goal of a more balanced world economy is entirely consistent with a weaker dollar and a stronger euro.” The Obama-bashers should look elsewhere for ammunition.