The US trade deficit data released yesterday confirmed that the dollar is not likely to get strong any time soon, particularly because no policy change is on the horizon. Our Treasury Secretary John Snow seems to have no clue what he is talking about. To blame other countries for our trade deficit problem simply means that we don't want to take responsibility, we have no control over our economy, and we desperately need help from other countries. Snow implies that somehow other countries (European Union and Japan) are not working to drive growth in their countries - a laughable hypothesis. In other words, Snow seems to have no clue how to reduce the US trade deficit.
But a weak dollar is not necessarily bad for everyone, as I had pointed out in my previous article on how to benefit from a weak dollar.
To understand the extent of dollar's fall in last two years, just look at the data. Two years ago, a dollar got us 0.95 Euros. Now, we get just 0.75 Euros. Analysis done by iProceed shows that dollar will fall further in 2005, as much as 20%.
How is it that our exports continue to decline despite a weak dollar?
As a management consultant, my argument is that we have not done a good job of exploiting the weak dollar. We have had a great opportunity to look beyond our shores and to aggressively globalize our business and we have succeeded at that only partially - we have moved our manufacturing and back-end operations offshore but have not done a good job of selling in other countries.
Secondly, Americans do not seem to be saving more. US consumer credit is at an all time high. When we finance our economic growth through more credit, dollar is bound to fall.
Finally, we have to take another look at how we want to run our economies. If we want cheaper goods from China (which has replaced Japan as the country responsible for our trade deficit), then we have to make adjustments in our economy so that we can live with this. We also have to clearly come out and say whether we really want a weak or a strong dollar. Right now we seem to saying something else while doing the opposite. And thirdly, we need to balance our budget as well. Most economists do not think that our economy is strong with the current fundamentals.
Recommended article: How to minimize impact of currency fluctuations on your business?
But a weak dollar is not necessarily bad for everyone, as I had pointed out in my previous article on how to benefit from a weak dollar.
To understand the extent of dollar's fall in last two years, just look at the data. Two years ago, a dollar got us 0.95 Euros. Now, we get just 0.75 Euros. Analysis done by iProceed shows that dollar will fall further in 2005, as much as 20%.
How is it that our exports continue to decline despite a weak dollar?
As a management consultant, my argument is that we have not done a good job of exploiting the weak dollar. We have had a great opportunity to look beyond our shores and to aggressively globalize our business and we have succeeded at that only partially - we have moved our manufacturing and back-end operations offshore but have not done a good job of selling in other countries.
Secondly, Americans do not seem to be saving more. US consumer credit is at an all time high. When we finance our economic growth through more credit, dollar is bound to fall.
Finally, we have to take another look at how we want to run our economies. If we want cheaper goods from China (which has replaced Japan as the country responsible for our trade deficit), then we have to make adjustments in our economy so that we can live with this. We also have to clearly come out and say whether we really want a weak or a strong dollar. Right now we seem to saying something else while doing the opposite. And thirdly, we need to balance our budget as well. Most economists do not think that our economy is strong with the current fundamentals.
Recommended article: How to minimize impact of currency fluctuations on your business?