0.5 percentage point: The potential boost in annual U.S. economic growth from the dollar’s decline since August 27.Consider the recent fall in the dollar.
Since August 27, when Federal Reserve Chairman Ben Bernanke signaled the central bank was likely to pump more dollars into the economy, the greenback’s value has fallen about 4.8% against the currencies of U.S. trading partners (data through October 15). Given the historical behavior of U.S. exports and imports, a sustained move of that magnitude should shrink the U.S. trade deficit by nearly $140 billion over the next two years. That’s the equivalent of an added 0.5 percentage point of economic growth in each year.
Since we have been talking about currencies in class, I thought this article was interesting and relevant.
ReplyDeleteWhen you think of something as small as the value of the dollar, you seldom think it could effect the global economy that much. BUT. When one country devalues its currency, others tend to follow suit. As a result, nobody achieves trade gains. Instead, the devaluations put upward pressure on the prices of commodities such as oil. Higher commodity prices, in turn, can cut into global economic output. In one ominous sign, the price of oil is up 8.7% since August 27.
I strongly support the ideas of Catherine Mann. I also think that the decline in dollar value is not a good long term strategy to implement. What the government should do is to take steps so investor confidence increases especially in those sectors of the economy that have a competitive advantage against countries like China.
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