The Incredible Shrinking Dollar
This article from the March 21, 2005 edition of Newsweek Magazine discusses the major economic issues involved with the current depreciation of the dollar. The article first discusses the atmosphere that exists in today's economy and possible storm clouds that a change in the value of the dollar could represent. Next, the article goes on to summarize the effect that a weaker dollar could have on the everyday American as well the effect on the balance of payments problem, i.e. the trade deficit that the United States continues to run. The article then moves on to discuss the ramifications that a weaker dollar could have on the rest of the world. Finally, the article goes through two of the possible solutions to the trade deficit as well as what should happen with the value of the dollar. The article begins by painting a picture of the economy in the United States today. Everything seems to be heading in the right direction. Evidence of this is that employment is expanding (2.4 million new payroll jobs), inflation remains low (less than 2 percent for the quarter), and the stock market is up with business investment rising. These are the t
This would have a huge effect on anyone who invests in the American stock market. Income/Output = Consumption + Investment + Government spending + Exports - Imports. All that this trend means to the typical American is that vacations cost more and that the price of foreign goods goes up which improves the competitiveness of the United States manufacturers on the global market. However, a possible problem that is developing is that there are now more dollars than foreigners want to hold on to. In England the pound will appreciate relative to the dollar causing the price of American goods to be relatively cheaper compared to British goods. According to the above equation, this will cause income/output to decrease. The depreciation of the dollar is a symptom of a disturbing problem. However, upon closer review the weakening of the dollar has a huge effect on the balance of trade in the United States. The recession may not only affect the U. However, with all that is good going on in the economy there is a potentially worrisome long run problem that exists. However, if the dollar continues to drop against other currencies such as the euro then the rate of return in U.
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