by WilliamSchmickMA on 10/14/2009 8:41:00 AM
On the surface, Americans might think that a weakening dollar means that there is something going wrong with our country. Quite the contrary, a declining greenback could actually help the economy recover sooner than hoped, and the stock market knows this.
Today, 40% of pre-tax profits of companies listed on the S&P 500 Index come from overseas. So a falling dollar helps a U.S. company’s bottom line by making the prices of their exported goods and services cheaper to buyers abroad. More exports mean more profits, which means more production here and hopefully additional jobs. At the same time, if we export more and import less (a weak dollar makes imported goods more costly to us) then over time the huge trade imbalances we have with countries like China and Japan become well, more balanced.
Although all indications point to the beginning of a recovery here at home, most economists believe it will be a slow recovery with unemployment first rising to 10% before the end of the year and then easing to 6% but no sooner than 2013. That prognosis will likely cause a backlash among unemployed voters who see their American Dream fading quickly from their grasp. The White House must be painfully aware of this threat as we enter a mid-term election year in 2010. As a result, I expect the Obama Administration in their public statements to continue to support “a strong dollar” policy while doing nothing to support the greenback as long as its decline helps lift the economy into recovery.
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