What To Do With The Dollar
As the Fed discusses how to take liquidity out of the market and stop inflation from running rampant I’d like to discuss why we shouldn’t be as worried about a weak dollar as the talking heads would make us believe.
Lets start with the case for a strong dollar. When the dollar is strong we are able to buy more goods from other countries effectively benefiting from their cheap labor and natural resources. Consumption in the US goes up, imports increase, standard of living goes up, everyone is happy.
And just like every leveraged business plan or mortgage backed security this is a great plan… until it’s not. When unemployment is hovering around 10%, people are underemployed and real wages are frozen or falling we need to shift our focus from consuming more to employing more.
What we effectively do when the dollar is strong is move jobs from the US to overseas where labor is less expensive. In recent years this has pushed not only low skilled manufacturing jobs but high skill R&D, accounting, engineering, etc jobs overseas. A weaker dollar will make these moves less attractive and bring jobs back to the US where the consumption is occuring.
US multinational companies will no doubt have a different outlook. They would see profit pressures (some would see benefits) and may raise prices or have lower margins. As this is a stock blog I must admit this wouldn’t be good for the short term stock market returns. But right now I’m more worried about Main Street’s employment issues than keeping rich investors rich.
In my opinion a weak dollar would help Main Street the most, even at the expense of Wall Street. Long term though, I think it would be in everyone’s best interest to level the playing field just a little bit. For the world’s sake it is important for the US to have a strong economy and strong employment. When we don’t, everyone is a little bit uneasy.