With all this talk lately of which way the economy is going to break (is it going to be depressionary deflation, or hyperinflation?), the question we really need to be asking ourselves is: what is the ideal value of the dollar in today’s world? Barack Obama doesn’t strike me as a gold standard kind of guy, so for the foreseeable future we are stuck with printable money.
If the value of the dollar is high, foreign goods are cheap to us, and our goods are expensive to them. this leads to trade imbalance in their favor. This can lead to a reduction in demand of our goods, reduction of manufacturing, GDP, wages, an increase in debt, etc.
If the value of the dollar is low, foreign goods are expensive to us, and our goods are cheap to them, leading to a boost to our manufacturing and exports.
Complicating this is supply and demand. If every nation in the world pumps up their inflation in order to boost manufacturing, pretty soon you have people working all day to build items that no one really needs any more. Once you have tires for your truck, getting eight more doesn’t do you any good. With the rise of China, we may be approaching that level where the market gets a bit saturated around the edges. When this occurs, it is time to move towards quality, tech, and automation. We can’t compete with cheap foreign labor in kind, nor should we desire to. What do you sell someone who already has all the basics covered? Better versions of what they have. Japan has survived with a currency as highly valued as it is because they sell things that are too complex for others to make.
Printing money doesn’t create wealth, but it does move it around. When they print new dollars, those new dollars are worth just as much as the dollars in your bank; those dollars just aren’t worth what they were the day before.
Back to the question at hand. What is the ideal value of the dollar, in today’s global market? I’d like to see it about 25% lower. Not all at once of course, but maybe over the course of two years.