Like anyone who follows our industry, I have noticed all the articles on the decline of the US dollar against the Euro and Canadian dollar.  A quick search on Google news shows mostly bad news but is this really the case?

Way back in the stone ages (I just turned 40) I was going to college and had to take some mandatory economics classes.  I vaguely remember this strange concept of supply and demand.  If my memory holds true, this fall means demand for the dollar is down.

In actuality, the demand for the dollar has not just fallen — it sunk.  Many countries and businesses are dumping dollar holdings based on problems they see in our economy.

So what does all this mean?  On the scary side, it means that foreign governments are concerned about our ability to repay our debt or at least make it worthwhile for them to buy government debt.  If they start dumping, everyone starts dumping.

While most of the articles focus on how bad this is for us, I see a silver lining. In those same economics classes I discussed earlier, I learned about something called equilibrium.  Basically, economic forces seek balance.

You see this in practice all the time.  If you go to a store during harvest, the crops are cheap.  There is an oversupply of corn on the cob so, competition forces the farmers to take less money for their product.

If you’ve tried buying corn on the cob in February, there isn’t much to be found so the consumer must pay more for the corn.  This is a simplistic example but it works for my purposes.

Back to the dollar. We (the United States) have a huge trade deficit.  This means we import much more than we export (something around 60 billion a month).  If you tie in economic equilibrium to this, you realize that the cost of U.S. produced goods is going down for the rest of the world.

If the dollar keeps falling, our goods will become more cost-competitive in the international markets.  This is good, we could eventually earn back some jobs from the international markets.

The negatives I see are that this may impact our ability to borrow money (this may not be all bad either) and that it makes buying up American companies cheaper for foreign companies.

Some of the more astute among you may have also realized that this means that foreign goods are going to get more expensive.  You are correct, though the impact of this may be put off for a long time.  For some really technical reading check this out.  In short, the cost of transporting the good within the US is such a significant portion of the cost that it will absorb most of the exchange rate difference.

In the end, the falling dollar gives me hope.  Maybe those GM workers who want more money and benefits won’t go the way of the steel worker. Maybe our willingness to pay outlandish wages to non-skilled workers won’t actually be the end of the American worker.  Maybe…

In the meantime many people are looking to hard currencies like gold to help insure against this fall.  Actually, if you look a little deeper people are even dumping gold in favor of platinum.  This might be a trend to capitalize on.