Dollar thoughts

It seems that all you hear about is the fact that the US Dollar is under pressure and because of the Fed policies is inevitably sinking in value leading to increased inflation and higher import prices. Now, during the worst of the financial crisis there was a run up in the value of the dollar and as financial markets have improved we have seen the dollar fall from those levels to levels of about a year ago.

Now, if you are a supporter of a strong dollar, this may be unacceptable but ultimately the value of a currency needs to be equated to other currencies based on value for goods produced. For example, at one time due to the types of industries and productivity involved, an American hour of labor may have been appropriately valued higher than it was elsewhere in the world. Of course, business is designed to maximize value and when you see jobs migrating from one country to another country, it is an indication that the cost of labor in the first country is no longer properly value rated.

So how does this get corrected? The most likely method is via currency revaluations. Now, either the currency of the first country has to lose value or the second country's currency has to gain value in relation to each other. This balancing is the result of supply and demand as the labor costs of the first country go down in response to oversupply or the labor costs of the second country rise due to under supply. These changes in cost are more easily accomplished by currency adjustments since it doesn't actually require that individual salaries be adjusted.

Is this a bad thing? Well, it is an economic event that is required to balance world economies. If you believe in free markets this is simply something that results from economic conditions. The problem normally arises when Governments attempt to influence the market forces.