There are many ways that an economy can be boosted—at least according to theory. The time honored techniques include lowering interest rates (check), increase government spending (not so much), lowering taxes (not this time) and then there is lowering the value of one’s currency. This latter approach means that exports benefit as they are essentially on sale. Other nations have to spend less to buy your products and as a bonus, the products that one’s consumers buy from overseas are more expensive and that shoves them back toward domestic options. This is effective to a point, but desperately unpopular in the global context. Some blame the severity of the 1930s recession on this "beggar thy neighbor" policy and most nations treat this as a last resort.
It would appear that more of the larger economies are starting to pull this tactic out as an option. In previous years, it was the developing and emerging markets that opted for this approach, but now it is the more advanced states that seem bent on reducing the value of their currency. Japan has forced the yen down to six-year lows in order to boost the moribund export economy and now Europe seems to be pushing the value of the euro down. This is all coming at the expense of the US dollar as it has been gaining against the world’s basket of currencies for the past year. Since the start of the year, the dollar has tracked higher than it has since the recession started and that has begun to take a bite out of the US export market. At the start of the year, the US saw a drop of almost 10% in terms of exports and now the dollar is even stronger. That does not bode well as far as exports are concerned. The rest of the world is broke and US goods are more expensive than ever in the global market.
- Armada Corporate Intelligence