Sunday, July 20, 2008

Benefiting from a Weak Dollar

The dollar is going to be weak for a long time. That's clear. The Fed isn't raising interest rates any time soon. With oil prices still sky high, trade imbalances will remain seriously imbalanced. The U.S. economy is slowing. The U.S. stock markets are falling, a disincentive for foreigners to buy American stocks.

Nevertheless, when times get tough, look for opportunities. A valuable life skill is the ability to turn adversity to your advantage. There are things we can do to benefit from the weak dollar.

Exports. Businesses can expand their export markets. Drops in the value of the dollar make American products more competitive overseas.

Manufacturing. The lower dollar means that manufacturing costs here are relatively lower. Domestic investment becomes more profitable than investing in a country with a rising currency. This is true for foreign companies as well as American companies. Toyota recently announced that it will start producing the Prius in America. Volkswagen has just announced that it will open a plant in Tennessee.

Tourism. Okay, the idea of making a living working on a dude ranch or a sightseeing bus doesn't quite carry the prestige of being an MD or an Esq. But many folks in Europe and Asia make comfortable livings fleecing tourists. The weak dollar will bring hordes of visitors to our shores. We, the fleecees, now have a chance to turn the tables on the fleecers. Shopping malls emptied by the credit crunch can once again hear the ring of cash registers. Sellers of t-shirts and cheap ceramics can prosper. Kitschy restaurants can scheme with tour bus operators to serve bland, mediocre American dishes to foreign people who don't know the difference. The dollar slots are cheaper than the Euro slots, and casinos nationwide could lure in the reckless and shortsighted from overseas.

Consumers. Shop for bargains and you'll increasingly be buying American. Imports are getting more expensive not only because the dollar is weakening, but also because rising energy prices have pushed transportation costs through the roof.

Governments. The federal, state and local governments should pursue policies to take advantage of the weak dollar. Now is a good time to promote investment in manufacturing, exports and tourism. America needs more than bailouts for large financial institutions to recover its economic footing. Financial firms are just intermediaries, and they can't become truly healthy unless the rest of the economy is healthy. Make the rest of the economy healthy, and they won't need government bailouts.

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