Something unnatural happened in the Wealth of Nations. As an economist in school I learned that weak dollar helps exports, employment and growth. All in all if the dollar falls imported goods may be more expensive but everything else is supposed to be positive.
Some good old rules are getting broken…
- Despite 12% drop in the dollar in the last 2 years and 46% drop in the last 5 against the Euro the US growth is behind that of Germany and even the EuroZone. They were supposed to be shrinking under the pressure of the cheap US exports… It turns out we are increasingly competing globally with companies that source products from the same place we do: China. And the Chinese currency is pegged to the dollar. The cheaper US exports get, the cheaper Chinese exports get…
- If we take two graduating buddies (Class of 2002) from the same midwest College split up and one lives in Germany the other one in Chicago the real cost of currency becomes real for them. If the two make the same money for the last 5 years what they made when they graduated… the German fellow would have over twice as much in dollars as his Chicago buddy by 2007 assuming they save at the same rate…
- The Chicago house one of them bought that appreciated 50% in those 5 years would have been flat counted in Euros. The same house in Frankfurt appreciating 50% would have doubled in price if measured in dollars..
Maybe all in all it is a good thing considering someone has to buy up all the savings and assets we accumulate over the years as I wrote in my prior article… We expected Chinese investors but we may have to take some Euros as well…
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