Wednesday, July 25, 2007

Why the Depreciating Dollar is good for the U.S Economy

The dollar is getting dumbed down every day.It is against its 26-year low against the British Pound and lower against other key basket of currencies. So, why is the US administration not doing its best to push up and support the dollar? Strange as it may sound,the government has been compliant in the depreciation of the dollar. This could be because the advantages of the depreciation outweigh the disadvantages,and so the government is unlikely to intervene.According to Bloomberg:

A weaker dollar is helping the economy and may bolster voters' confidence in the Republican party as the U.S. heads into a presidential election year. Rather than causing foreigners to flee U.S. securities, the depreciating currency is making American goods less expensive abroad and helping offset the worst housing recession in 16 years. Exports reached an all- time high of $132 billion in May, the government said this month.

Consider the following factoids:
  • Exports have gone up and trade imbalances have been reduced.

  • Operating sales income of most big Corporations have gone up.

  • Most important of all,the depreciating dollar has helped reduced deficit in the first quarter of this year from 7%to about 5.7% of the economy.


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