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The Cost of Strength
A strong dollar makes imports cheap. Americans like cheap products even as they rant about the loss of jobs to American and overseas companies on foreign shores. This appetite for outside goods has kept the recovery crippled, or at least that is the current unstated approach by those make policy.
A weak dollar acts in reverse making imports more expensive and exports more attractive. The hope, and I emphasize hope, is that this will act as a balance of trade. What few people want to determine is how low the dollar needs to go in relation to other major currencies to reach this balance.
But the world's cooperation may be slow in coming. Asian countries, specifically China, Japan, South Korea and Taiwan, are understanding the dynamic of what the United States wants better than we do. These countries understand they would need to let their currency float freely and react accordingly to the open market. Paul O'Neill espoused that view as the Secretary Treasurer. John Snow, his replacement is more or less openly suggested otherwise.
A couple of problems are present with this scenario. Not only does this make their exports more expensive with price fluctuations, but it makes the value of the debt they hold against the United States worth less. Considerably less. The current totals held by these four countries exceeds $1 trillion even as the U.S. is baiting more hooks to cover the growing deficits.
The Japanese recovery is just getting a foothold. Any currency moves might derail that effort. The result of that cooperation the Asians feel would drop the dollar like a rock.
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