Olivers wrote:

EvelynVogtGamble(Divamanque) muttered....

Well, we enjoyed favorable exchange rates for a long, long time - when
the dollar keeps dropping in value, perhaps we should do something about
our trade deficits? (I admit my recent trip to Vienna cost me
considerably more - in US currency - than the one in 2000, but what can
you expect, with our current administration?)

Quick course in Economics, Ev, the part you must have missed during your
last and lamented miseducation.....

For trade deficits, a dropping dollar makes US goods cheaper and cheaper
abroad, quickly increasing US exports (although we now produce less
exportable goods, and have not been able to produce cars attractive to
foreign purchasers).

Meanwhile, the dropping dollar causes folks to quit buying foreign goods
which begin to cost more and more (works for everything but oil). Imports
drop, the trade deficit decreases, and the dollar strengthens.

Actually, the US dollar had become far over-valued as a number of foreign
economies had slowed/declined, and the current "adjustment" down represents
a reality bite for US travelers abraod, the dollar being worth closer to
what it ought to be. Sadly, for US consumers, one thing which would cause
the dollar to jump in value would be a quick increase in US interest rates
causing a flood of foreign investors to invest in US governmental and
commercial debt instruments. Immediately, US consumers would be paying more
for personal debt service and the interest-increase would shoe up in price
increases.

Currently, vehicles sales remain relatively high because the cost of credit
is so low. Even imports continue to sell, because their cost of production
is reflected in dollar values from months ago when their materials and
components were purchased, and the financing/debt costs to the US consumer
are the same whether he buys a foreign made auto or a domestic car (and
many "furrin" cars are assempled in the US (with many US comonents).

For decades, the US, with little competition from tiny postWWII foreign
economies essentially "fixed" the value of the US dollar, with the
USTreasury and banks ever able to buy and sell funds in amounts large
enough to stabilize and fluctuation overnight. While still the world's
largest economy (by any measure or standard), the US is no longer so
dominant that it can almost effortlessly keep the yen or the
pund/franc/mark and now Euro from going up (or even down).

So, while cheap dollars make your trip to Europe expensive, cheap dollars
actually stimulate production and employment in several large segments of
the US economy (but accomplish quirky side effects such as grave damage to
a fragile Mexican economy for which the two largest providers of funds are
money sent home by Mexicans, legal and illegal, working in the US (whose
dollars will no longer buy as much) and US tourism (declining as tickeys,
hotel rooms or meals go up). That's why Mexico, no matter the dollar's
movement, does everything possible to hold the peso in a stable
relationship to it.

The over=priced dollar of the later Clinton years wasa sure-fire
inescapable predictor of "things to come" to almost every international
economist (and the pages of dozens of economic publications, 1995-2000,
were filled with dire projections). Some folks simply didn't read (and
never have).

That's how currency traders make money. Most of them read.
TMO

You view if economics needs a quick insight into inertia. Most severe
drops in currency value have resulted in significant increases in trade
deficits. The volume of product being moved shifts much more slowly
than the value changes. Thus similar quantities in/out result in higher
deficits. Now an inability to borrow and finance the deficit may have
an impact but the shift in purchases is slow. FFM