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Edited on Sun Sep-14-03 08:06 AM by TahitiNut
... when the dollar is devalued (inflated) against other currencies, it will increase the foreign purchases of US goods and services. (It can also increase the purchase of US assets, including equities, putting upward pressure on stock market prices.) Since oil is dollar-denominated, it also lowers the price of oil for other countries. When OPEC sells oil for dollars, then the OPEC countries must use those dollars to (eventually) buy American goods and services. At the same time, it reduces the purchasing power of dollars for foreign goods and services, which theoretically reduces US purchases of foreign goods and services. The combined effect is to 'improve' the balance of trade.
This is, like I say, 'theoretical' since it's premised on viable choices - the notion that for the majority of goods and services there's a choice between a foreign and US producer and such choices can be exercised with a certain immediacy. This choice exists less and less at the consumer level. Such choices, to the degree they exist, are becoming more and more the choices of multinational corporations - choices in labor, components, and raw materials. The problem here is that the economics of such corporate choices are based on other economic factors rather than mere direct cost. Various indirect costs that're a function of the regulatory environment have a significant role in such choices. (If, for example, the Bhopal disaster had occured in the US, Union Carbide would probably be toast, even assuming the codes and regulations in the US would've been lax enough to permit the conditions for that disaster to exist.)
Another effect of dollar devaluation is on dollar-denominated US debt (e.g. T-bills) held offshore. Prospective inflation offsets prospective interest/yield, reducing the 'attractiveness' of such investments and putting upwards pressure on interest rates. In other words, it increases the cost of borrowing which, in turn, increases the amount taxpayers are paying to subsidize the debt.
Notice that all this is, in effect, turning to offshore purchasers. Since the "lower 90%" in the US (economic cannon fodder) is increasingly impoverished, both by unemployment and a shift in the total tax burden, it makes a perverse kind of sense to look elsewhere for consumers. :shrug:
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