The Dollar is Weak. Is That Bad?

Every textbook I have reviewed for Introduction to Business and even Small Business Management includes some degree of economic theory. While I am not an economist, these sections lead to some of the best classroom discussions. In my class I take these opportunities to pound one concept into my student's brains; nothing in economics is either good or bad. All of economics is about balance.

Read any business publication or blog today and the weak dollar is a recurring theme. Many of the articles and posts present the doom and gloom, so this is bad. Right? The answer is, like every economic condition, what is bad news for some is good news for others and vice versa.

What is a weak dollar?

Economists say the dollar is weak when it becomes less valuable than other currencies. I can remember a time when one US dollar (USD) was worth about 1.25 Canadian dollars (Looney's). As I write this, $1 USD = 0.98 Looney (current exchange rates). If something were priced in Looney's at $100 you could expect to pay about $102 USD today but it only cost about $80 USD before.

Now let's put some perspective on a weak dollar. If you are planning on traveling overseas or buying foreign products, then a weak dollar is bad news. It will take more USD's to buy the things you want. But the weak dollar is good for US businesses who have customers and clients overseas since the overseas currencies can buy more goods and services. Tourism to US locations with international appeal such as Disneyland and Hawaii should benefit from growth in international tourism. I could even argue that growth for domestic businesses eventually benefits Americans as a whole since some of them have purchased investments in domestic companies.

The down side is that since we are dependent on foreign oil, the weak dollar is also pushing oil prices to the $100 USD a barrel range. Higher oil prices lead to higher gas prices. Higher gas prices impact the prices of almost every tangible good and service. Increasing prices is called inflation.

Is inflation good or bad?

If you answered "that depends" then you get an A+ for the day.

Balance by jemsweb

Comments

[Sherry Borzo]

Thanks for the great post Art. Believe me, I tried to comfort myself about all the ups of the weak dollar on our recent trip to the UK. At least, I told myself, this is reducing our trade imbalance...right?

So what do you think...will we have the purchase of more companies and real estate by foreign investors now that the dollar is so weak? What about gold....Is it time like the advertisements are touting to bury our money in gold and then under the mattress?

I tell ya, it has me sleepless at times!

[dimes]

Yeah, the weakness of the dollar is making oil prices a record high, but are they hitting records in other countries? Does it matter if oil is only traded and priced in dollars?
My husband believes it will help to reduce the US trade deficit if certain goods become more expensive to import than to produce locally (food, vehicles, clothing, etc) but I doubt the problem will last long enough to spur much additional manufacturing capacities in the US. I wonder how the dollar compares to the Peso ;-)

[Pinyo]

Nice post! The weakening dollar is probably affecting me more than a typical American -- just like you said -- because I travel more and have some financial interactions with other currencies.