Dollar Decline: Good Thing?

Even though the mainstream media does not tell you this, the decline of the American dollar is a very mixed eonomic event.

To illustrate this, let us consider China.  What is one of the main complaints against China's econmomic polices?  China has artificially pegged its currency to the dollar, rahter than letting it float on the currency markets--at what critics say is an artificially LOW VALUE.  In other words, China is deliberately keeping the value of its currency LOW.  Why is that?

It is because this makes Chinese goods CHEAPER internationally, and gives China an unfair? advantage in international trade.   

AOL is presently carrying a blog article about how the decline in the U.S. dollars could help bring back jobs to the United States.  Tis is absolutely correct.  It makes our goods cheaper in international markets, and makes the goods of other countries--including China--more expensive here.  This means that domestic manufacturing, for example, can better compete with imported manufactured goods for the U.S. market, as well as being in a better postion to compete in international markets.

So why is this not definitely good news?  It is because a low value currencty is, almost by definition, evidence of, and a cause of, INFLATION.  If you engage in a spending and monetary policy which casts prudence and responsibility to the winds, then the result can be a runaway inflationary spiral that causes the economy to collapse.  Plus, as stated, the declining value of the currency itself causes commodities like oil--plus other imported goods--to become more expensive. 

This, however, is a theoretical danger.  There is not much present evidence that we are anywhere close to an inflationary spiral--despite the rahter gradual rise in oil prices (gradual over the past few years, after that huge spike around Katrina time).  Yes, there are some signs that inflation is heating up.  But, by recent historical standards, inflation in the U.S is LOW.  For comparison, inflation in the Carter years reached double digits.  As this blog has pointed out, environmentalists are responsible--at least in part--for FOOD price inflation with the biofuel campaign.  Given the all of this--including China inspired demand for oil keeping the price high probably more than our currency drop--it is amazing that inflation has stayed so much under control.  Our economy has done relatively WELL--hurt NOT by an "infaltionary spiral" but by DEFLATION in housing (the bursting of the housing "bubble").

Thus, we have some margin for error on the inflation side.  This has kept the Federal Reserve dropping interest rates (see the slowdown and deflation in housing), despite the decline in the dollar and some beginning signs of inflation.

All in all, the decline of the dollar probably IS a reasonably GOOD THING right now.  If we could avoid disastrous mistakes, like crucifying our economy on the alter of the "global warming" fraud, the decline in the dollar might turn out to be a very good thing--especially if what looks like another developing "bubble" (in oil and commotdities) were to burst.  Environmentalists are doing their very best to keep commodity prices high, as well as to put burdens on our industry with "global warming" requirements.  If people would start telling environmentalists to go find a lake in which to jump, a lot of our problems would become much easier.

Note that extreme environmentalissts are now bombing luxury homes (news from Washington).  If only that were the worst economic damage they were doing, we would be pretty well off.