Is a strong dollar better than a weak dollar?

Yes, for Americans though not for the world as a whole.  For the relevant thought experiment, assume an exogenous shift in noise trading boosts the value of the dollar.  That increases the wealth of individuals and institutions that are long dollars, and presumably this is the case for this country overall.  If you owned lots of ponies, would you not want the price of ponies to go up?

A weak desire to substitute into imports could blunt this result somewhat.  Or in other words, American tourists will benefit to a disproportionate degree.

The down scenario is that a lot of emerging economies have too much dollar-denominated debt, and the second-order blowback from their potential insolvencies could hurt America too.

I am sorry this post did not come up at 3 a.m.


Comments for this post are closed