Given my background, I get a lot of questions on the the dollar's value. Many of them are related to the trade deficit. Here is the bottom line. The US has been shipping dollars out of the country in mass quantities to pay for imports for years. The US is a large country with a history of steady growth. The dollars come back to this country to take advantage of those growth opportunities. Lately, there have been growth opportunities elsewhere as well, in sufficient amounts that some of that investment goes to other countries, lessening demand for dollars. Hence, the "price" goes down. This make goods here cheaper and if all things were equal (which rarely occurs in trade), consumers will demand more, which they have. US exports are increasing at 3 times the rate of imports, and would be increasing faster if the single largest US import, oil, wasn't being driven higher by speculators (I know, I know, the supply figures were lower. It shouldn't be a real surprise that companies don't want to buy oil here when they think it will be cheaper later on. Supply number measure oil in storage, not what's being produced. In addition, gasoline prices have lagged oil, squeezing margins. Here again, it shouldn't be a surprise that less in being produced and capacity utilization is down.). As long as inflation remains under control, we shouldn't be overly concerned about a weaker dollar. Our trading partners, however, that have made a living off of a stronger dollar, have much more to be worried about. But that story is for another time.
So ends the micro- and macro-economic lesson.
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Oh great Bondguy, you hit the nail on the head. I have long said (and have written), that our trading "partners" need us more than we need them. Potential suppliers are waiting in the wings, but there is only one U.S. market. The strong dollar has made imports cheap. Now the playing field is a bit more level.
There are two ways the prices of U.S. goods to become competitive. 1) Reduce labor costs via pay cuts or two 2) Let the dollar fall until it has the same effect (in essence, workers are being paid less as their dollars are worth less).
Critics of the weak dollar claim you can't devalue your way to prosperity. This is true in the extreme, but a little adjustment now and then is not necessarily bad.
As for the phenomenon of rising oil prices and stable gasoline prices, those long oil stocks may reconsider the strategy of letting trees grow to the sky.
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