What a Weak Dollar Means!

by Melanie Gold.

Tax bill sales pitch was that millions of dollars would pour into the US, however, our dollar is going down. If millions were coming into the country the dollar would be going up not down as individuals and companies would be selling whatever currency where the money was held and buying dollars. However, despite the fed raising interest rates twice (which should strengthen the dollar) the dollar is down 10 percent in value since Trump took office.

What does that fact signify? 1. Other countries look like a better investment than the U S which is indicated by lower dollar. 2. Increased debt signifies higher interest rates. 3. Lower dollar (10 percent lower since Trump took office) means imported consumer products will be more costly to us. 4. More costly to travel outside the country. Basically increased costs for consumers will wipe out any benefit from decrease in individual taxes unless you are in top percentile. Higher interest rates will make the cost of borrowinv increase.

Lower dollar signifies that investment in other countries looks more promising than in the United States. Indeed, other economies are outpacing us at this time. This fact is not necessarily surprising since we recovered before other countries. But the problem for us is at a time in the economic cycle when we should be paying down debt we are adding to the deficit. Therefore, more of our productivity will go to servicing debt than growing our economy. We are like that family who got a small pay raise and went out and bought a bigger house. If in an economic downturn one of the family members lose their job or gets a pay cut they will no longer be able to afford the increased debt of the bigger house. The bigger house only becomes a wise investment if the family continues to see pay raises to afford the bigger house.

A lower dollar will make our exports more attractive but we would have to be making goods to export.

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