Ben Bernanke's Double Talk on the Dollar

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Nov 16 2009, 3:38 pm by Derek Thompson

Federal Reserve Chairman Ben Bernanke explained today that the United States faces numerous economic "headwinds" and that he's looking out for the strength of the dollar. Wait a second. Wouldn't the growing strength of the dollar right now be just another headwind for the economy?

Bernanke is right that "reduced bank lending and a weak labor market will probably restrain the pace of the U.S. economic recovery," but where is this recovery coming from? Partly it's coming from the weakness of the dollar. A "weaker" dollar is good for U.S. exporters, and one of the reasons we're seeing an uptick in manufacturing is that Asia's strong recovery, combined with the weakness of the dollar (down more than 10 percent since March), is giving our manufacturing a huge boost. Today our manufacturing sector is growing faster than any country in Europe.

Why are manufacturing/exports so crucial for the economy right now? Precisely because of the headwinds Bernanke points out. American consumerism is in hibernation. One out of six workers are unemployed or under-employed. We need foreign markets to help drive production. We need higher production to drive company profits. We need sustainable company profits to lift employment. And before all of that, we need a low dollar.

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Comments (4)

mgoodfel November 16, 2009 4:57 PM

We run a huge trade deficit, which means we import more than we export. So if a falling dollar makes imports more expensive, and gets us less for our exports, this is a bad thing, not a good thing.

You are seeing factories running harder and (maybe) employing more people, and forgetting all the stuff getting more expensive for consumers.

What we really need are stable currencies that reflect fundamentals. Not dollars falling in response to huge budget deficits, and not Chinese currency pegged to the dollar to keep their factories running.

Jeff November 16, 2009 6:39 PM

I think your fundamentally misunderstanding the relationship between a strong/weak dollar and US imports/exports.

Derek Thompson (Replying to: Jeff) November 16, 2009 7:29 PM

Do you disagree that one of the first consequences of a weak dollar is more exports, a lower trade deficit and higher manufacturing?

samX (Replying to: Derek Thompson) November 17, 2009 8:33 AM

What are we exporting? The stuff that we brought in from China that cost us more vis a vis the weak dollar?

Which industries are increasing in exports? Show me the industries and then we can talk.

Not to mention that fact, that just because something got a little cheaper does not mean more people are buying it. The elasticity of demand has as much to do with export demand as the dollar does. And since so much of what we export relies heavily on imports, the relationship gets muddy.

And if you want to go on a strictly cost basis, if companies were buying manufactured goods in the US more now because they are cheaper (than they used to be in the US) that would seem pretty foolish when they could be 50-75% cheaper manufactured in China.

And obviously, this all depends on what kind of goods, what kind of manufacturing.

It's not as simple as you suggest.