Is the Falling Dollar All that Bad?

We heard all these concerns about the ramification of what a falling dollar means. However, are there any benefits to a falling dollar to our economy? Recently I did an article on what a falling dollar might mean for real estate. Besides, a potential rescue to real estate, there are signs that a falling dollar is attracting more small businesses to get into the exporting business.

According to the International Trade Administration, ninety-five percent of Florida’s exporters are small businesses. Those particular businesses account for sixty one percent of Florida’s exporters in 2005 and the trend is growing with American businesses nationwide that do not have any subsidiaries overseas. We are seeing the highest sale records being set by exporters for the past seven months, something they haven’t seen since 2000 when the dollar was about 55% higher. It is almost like a new bubble being created. However, it’s a bubble that can add a percentage growth to our economy according to Joe Carson who is the head of a global economic research at AllianceBernstein.

A lower dollar generates a higher cost of production for American companies who are outsourcing overseas. However, now they could find it more cost effective to produce their goods on American soil because the increase of the Euro as a result of the dollar decline. This also includes foreign companies finding it advantageous to set up shop here. That too would help stimulate the economy with more jobs which stimulates more growth. A small exporting business would also become more stable due to the diversity of its consumer base. We could actually see those “Made in America” labels again that went out decades ago.

As a result of the low dollar, we are already seeing the foreign customers taking interest in our cheap products with weekend junkets from England to New York or crossing the border from Canada to the States swooping up bargains like, there is no tomorrow. This too helps stimulate our economy. In the long run, when we do conversion dollar euro, we can see that the value of dollar is quite fighting. As what people say, there is always a good side of every bad thing. This might be true in the case of falling dollar.

We could see foreign investment firms buying up some of the ailing builders. Recently, I heard on CNBC, a Dubai investor being interviewed about purchasing some of these American construction companies six to twelve months from now. Will it stop there? Will more foreigners own a piece of the American pie?

As long as the falling dollar is orderly, it could pan out well. However, the negative side to all this is a potential lack of confidence in the dollar. Already we can see that regarding some countries using Euros instead of Dollars for oil. Presently, we see it mainly with some Arab countries. However, in 2006, a proposal from Iran to have an International Oil Bourse (IOB) established in Euros was placed on the table, except to date is has not been opened. If this is successful it would put further pressure on the dollar as foreigner countries would be interested in accumulating asset funds in Euros for their future payments of oil. China, Russia, and the European nations are evaluating this plan to exchange oil for Euros. Therefore, that would suggest here in the United States, we could see the type of prices Europeans have been paying for gasoline. That could easily mean $5 or $6 per gallon of gasoline. Furthermore, that would be also be passed down with every product we buy creating more inflation.

Here are some of the pros and cons that I came up with due to a falling dollar:

Pros

• We would have increased sales in exports
• We would see foreigners buying American goods.
• We would see foreigners buying American troubled companies.
• We would see foreigners buying our distressed real estate.
• It would have the effect of reducing our trade deficit.
• There would be more travel within the United States from Americans and foreigners which helps our economy.
• It would create more domestic jobs when companies manufacture products here.

Cons

• 52% of foreigners finance our debt. If it falls too fast, foreigners would have a fear of holding dollar assets.
• Oil and gas prices will continue to soar.
• Traveling overseas will be very costly.
• It could hurt your retirement if you aren’t invested against inflation.
• I guess it will depend on your perspective and what it means to you if the dollar is weak. However, there could be a situation that if the dollar goes into a free fall that there won’t be any “Pros” left to talk about.