NYT: A Field Guide to the Falling Dollar

[DeepModem Mom]

A Field Guide to the Falling Dollar
By DANIEL ALTMAN
Published: December 5, 2004


JUST what will the plummeting value of the dollar mean for the American economy? The answer is not quite as simple as "less imports, more exports." Depending on how investors behave, the dollar's downward drift could cast anything from a benign breeze to a hurricane.

If the dollar loses value slowly, giving businesses and investors plenty of time to adjust their spending and portfolios, the main effect may be to make the American economy more competitive. That would be a happy conclusion.

But if the dollar takes an abrupt dive, the consequences may be dire. Companies and consumers alike may find themselves stripped of purchasing power and ground down by sky-high interest rates.

The repercussions of a long-term decline in the dollar could be far-reaching. A permanent change in the relative prices of goods and services produced in the United States and abroad could hamper some important and long-running economic trends, like the growing productivity of the American work force.

"On balance, it's going to be good for people invested in the manufacturing sector of the United States if this thing is permanent," said Samuel S. Kortum, a professor of economics at the University of Minnesota. "It sounds very mixed and potentially even sort of bad if you think about it for the whole economy."...


http://www.nytimes.com/2004/12/05/business/yourmoney/05doll.html