Best Business Commentary

What does the weak dollar mean?

The U.S. dollar really did hit a “historic” low yesterday, says Ben Steverman in BusinessWeek.com. But blaming the Chinese officials who said China should diversify its foreign currency stockpiles is silly—their views hold as much power as “the mayor of Milwaukee making comments on the war in Iraq.” Instead we should “look at economic fundamentals”: the bond markets are expecting “a deep slowdown in the U.S.,” so investors are switching to “other currencies that will give them better returns.” The dollar will probably stay low for “quite a while,” so “Americans will have to get over the embarrassment of a weak currency.”

Well “so far, Americans have made out quite well from the decline in the dollar,” says Randall Forsyth in Barron’s Online. “Forget the economics textbooks.” The 9 percent drop in the dollar this year has effectively cut our foreign debt by $155 billion, and it is doing “relatively little to restrain imports.” Plus, it is good for our foreign investments, be they a multinational’s new overseas factory or an individual’s international mutual fund. Besides, the dollar still has some way to fall: the greenback hit “its nadir against the Japanese yen in 1995,” and was at its weakest against gold in 1980.

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The falling dollar is being “spun by the Goldilocks crowd to be a positive event because of its impact on exports,” says Herb Greenberg in SeekingAlpha.com. But it’s really nothing more than “a sign of weakness by the U.S.” The greenback is “now the economic equivalent of the Blue Light Special, and we all know what happened to K-mart.” And as Stephen Roach at Morgan Stanley noted two months ago: “No nation has ever devalued itself into prosperity.”