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Strong or Weak Dollar?

Hi Cullen,

I will assume that the reason Trump or anyone that wants a "weak" Dollar is so that US products are cheaper in the world market.

1)  Is there a scenario why or when we would want a "strong' Dollar? Or does it even matter either way (so let it the USD just float)?

2) Can the FED really control  it as Trump almost implies they can?

I use quotes for weak and strong because I don't even know that anyone knows how to quantify when it is weak or strong. Japan's Yen for example has a CAGR of 2% over the Dollar since 1960, so I don't see how we can claim the USD is so strong. The Euro has a CAGR of 1.3% over the Dollar since its creation.

In a perfect world we would all let currencies float and the markets would take care of the rest. But everyone tries to manipulate their currency for logical reasons. China, for instance, is trying to compete with the USA and needs a weak currency to do so. So they try to keep their currency weaker than it otherwise would be.

But yes, it's very hard to measure what is "weak" and what is "strong". And weirdly, you want a strong dollar because that's a sign that your economy is going better than others. A weak currency is usually weak for a reason. Like, in the case of China, they don't have enough domestic demand so they still rely on foreign investment to fund much of their domestic demand. You don't really want that sort of foreign dependence.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Thank you Cullen. Your answers always enlighten me in a manner I can understand.

In a sense, an emerging country that does not have enough domestic demand and that needs to export could never have a stronger currency (than the USD).

 

I heard the dollar in the US is going weak