Jerry Bowyer says that the decline in the dollar is nothing to worry about. Bowyer makes the argument that the Fed’s interest rate hikes led to deflation, thereby causing the relative value of the dollar to be overinflated. (In more basic terms, interest rates meant that there was less money being circulated (liquidity) and the price of the dollar rose because there were fewer dollars going around. When the Fed cut interest rates, there was more money in the system, meaning that the dollar’s relative value would drop as it has been.)
Overall, the fundamentals of the US economy are still relatively strong despite the economic downturn. Fears of terrorism and uncertainty over the effect of Iraq on the world oil market have kept the economy in recession. However, as the situation eases and uncertainty lifts, it seems that the economy will pick up, barring any more wars or major terrorist attacks. While European shopping trips may be less attractive now, the fall of the dollar is only a natural market correction that doesn’t mean much in the long run. The economy may have problems, but deflation isn’t necessarily one of them.
