A major issue is the ease with which US firms relocate production to China and the low cost labour sources around the globe. This is not a bad thing for China, nor India, nor the Tiger economies of Asia. It's a bad thing for American employment. How do you figure moving the US exchange rate down somehow slows this process? To my mind, the weakening dollar reflects too many dollars doing bugger all but available to US companies to relocate their production outside the US. In fact, credit creation by George Bush accelerating the flow of jobs outside of America by making it easy for US companies to finance relocation. Dah!
The dollar's weakness is not really an advantage to America because it allows for inefficiencies in the American economy to grow. Cheapening American goods only allows US firms to be more inefficient.
The weaker US exchange rate does not slow down American imports which are due to relatively higher incomes in America. Americans have a knack for buying rubbish so a rise in the cost of this rubbish won't slow down the influx. What would slow down the inflow would be a change in the mix of goods to higher quality. This is not encouraged by weak monetary policy.
The idea that exchange rates going up or down affects trade is an old one, but the problem is that the arguments frequently neglect the mix in the value of trade, or put another way, higher incomes in America and saving would result in a trading up of the composition of imports by America. The fact that America imports more rubbish despite a weakening of its currency means that incomes in America are declining. Imports are remaining high even as the dollar value falls. The exchange rate does little to offset the trade imbalance which reshapes itself into a different mix of goods.
The perverse process of economics means that a stronger dollar might get US companies in America to produce the rubbish that it's customers seem to thrive on.
In none-rubbish products, however, a stronger dollar would force US firms to be more efficient. The problem is then that they avoid that process by migrating their production to China. So how does the exchange rate impact anything? Well, perhaps the US could consume quality rather than rubbish.
All in all, the problem is weakness in American domestic economic policy that encourages Americans to consume rubbish from China rather than quality from America. Figure that one out!
I think that maybe the solution is to force a slowdown in the American economy through more expensive money. This would make it more difficult to finance relocation in China based on credit funded in America. Perhaps, the problem is that it is too easy to relocate production to China while there is so much credit available in America to make it easy to relocate.
Will ye no think kindly on those who would be your friends! May the sun shine with your thoughts, today, and happiness grow in your heart! May you allow yourself some peace of mind.
