Weaker U.S. Dollar both helps and hurts America

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The USD has been slowly weakening over the last few months. It is getting to the point that other countries are beginning to accuse the U.S. government and the Fed of intentionally weakening their own currency. This news is not good for the U.S. as they are in the middle of trying to convince China to stop doing the exact same thing to their currency. The U.S. is supposedly weakening the dollar by continuously printing money. So why would the U.S. want a weaker USD?

You may recall a while back, President Obama said he wants the U.S. to double U.S. exports within five years.  This is a very ambitious goal and one that would tremendously help the U.S. economy in its recovery. One way to help achieve that goal is if the USD is weaker. This would allow American goods to be cheaper for other countries as their home currency would be stronger against it. Canadians know this formula very well as they have seen how a strong and weak USD vs. the CAD can impact their economy. In this way, a weaker USD helps American exporters to expand their goods in international markets.

On the flip side however, American consumers can be hurt by this strategy. The U.S. economy is based largely on consumption. A lot of that consumption is imported from places like China, Canada, Europe and elsewhere. Now China’s currency is pegged to the dollar so the impact from a weaker dollar may not be that big, but for other imports, the prices Americans pay for things might rise. If it becomes more expensive to purchase certain goods then it will place added pressure on consumers and even businesses. This is not a good time to make purchases even more expensive because consumers and businesses are spending less now as it is. This less than stellar consumption is one of the reasons the recovery has been slow, so this can actually make the situation worse.

It is not clear how this will play out and which factor will outweigh the other, but it is a strategy that is not without risk.