Thursday, January 25, 2018

Should we have a Strong or Weak Dollar?

Treasury Secretary Mnuchin recently stated the advantages of a weak dollar and this in turn caused the need for some damage control from President Trump that stated the U.S. policy is to have a stronger dollar. The problem is that there are advantages and disadvantages to a strong and weak dollar.

Strong Dollar Issues:
-More purchasing power internationally.
-Foreign products are cheaper.
-Supplies are cheaper.
-Foreign labor is cheaper.
-More international strength.
-Investment often moves overseas to cheaper alternatives.
-American products are expensive.

Weak Dollar Issues:
-American labor is cheaper.
-Additional investment in local markets.
-Improved manufacturing by American companies.
-American products are cheaper.
-Less purchasing power and less influence.
-Less purchases of foreign products.

Each as their own advantages or disadvantages. In the long run, a slightly deflated dollar by say 15% can make American businesses more competitive. But this can't be done overnight because we neither have the industries to service our own supplies nor are our businesses capable of adjusting that quickly in their purchasing and supply processes. A slightly deflated dollar can work to our advantages is managed over a 5 year period.

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