Lake Martin Topics: Dollar Value

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	Name:	MartiniMan -
	Subject:	Dollar Value
	Date:	3/18/2008 10:15:46 AM

Feb:

I agree that the weak dollar accounts for a portion of the rise in oil prices (I heard recently that it accounts for around 40% of the recent rise). As for the cause of the weak dollar it is actually not the deficit (which actually makes the dollar stronger). The value of the dollar is impacted by supply and demand on what is known as the Forex market (Foreign Exchange). When there is high demand for U.S. dollars the currency is stronger and vice versa. There is no right answer as to whether we do or don't benefit from a weak dollar. For example, with a weak dollar our exports are cheaper and it benefits U.S. manufacturing and tourism. The opposite of that is the cost of imports and travel abroad rise with a weak dollar. So how it impacts someone's individual economy depends on their circumstances. Below is a list of items that drive the value of our currency (this comes from the Fed's website so it is allegedly non partisan).

Factors Contributing to a Strong Currency
-Higher interest rates in home country than abroad
-Lower rates of inflation
-A domestic trade surplus relative to other countries
-A large, consistent government deficit crowding out domestic borrowing
-Political or military unrest in other countries
-A strong domestic financial market
-Strong domestic economy/weaker foreign economies
-No record of default on government debt
-Sound monetary policy aimed at price stability.

Factors Contributing to a Weak Currency
-Lower interest rates in home country than abroad
-Higher rates of inflation
-A domestic trade deficit relative to other countries
-A consistent government surplus
-Relative political/military stability in other countries
-A collapsing domestic financial market
-Weak domestic economy/stronger foreign economies
-Frequent or recent default on government debt
-Monetary policy that frequently changes objectives.