Startled awake by the yawning trade gap, the Bush administration slips into its modus operandi: wield a blunt instrument as a weapon. Currency exchange rates are among the most powerful and least focused macro economic tools. But hey, when you're in a hurry, you grab what's within reach.China's currency has been dramatically undervalued for many years. But their currency is pegged to the dollar, so reducing the value of the dollar will not immediately change the economics of the China trade. And nobody thought the dollar was particularly overvalued to the Euro or other currencies.
The fall of the dollar helps exporters like Boeing but it is a direct tax – yes, a TAX – on all American consumers. This administration opposes taxes, publicly. Call it "collateral damage". Moreover, these tax proceeds go to domestic producers, not toward our huge budget deficit, further devaluing the currency. Simultaneously, it puts American assets on sale while cheating American creditors and raising prices on all foreign goods, like oil. The first consequence is probably the sole support for the sagging stock market, staggering under the doubt of unknown debt valuations. The second consequence will be more slowly reflected in deflated prices for American debt. Who wants American debt if we will repay them with devalued dollars?
Welcome to another long-term, deeply debilitating consequence of the miserably failed Bush presidency.
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