Disarray in U.S. budget talks sends greenback higher

Comments (2)
sidevalve56 wrote:

Does this make sense to anyone else?

Dec 21, 2012 11:14am EST  --  Report as abuse
Bob9999 wrote:

@sidevalve56:

Actually going over the so-called “fiscal cliff” would strengthen the value of the dollar, because it would mean lower Federal deficits. Fundamentally, the very reasons that people are concerned that going over the “fiscal cliff” would be bad for the economy — that is, access to money would be reduced, thus reducing spending — are things that are helpful to the dollar in international foreign exchange markets.

Many people have the misconception that a strong dollar is always good for the economy. That is not necessarily the case, because a strengthening currency hurts a country’s ability to export. Thus, China is accused of manipulating its currency to artificially depress the price of the yuan in order to keep Chinese-made goods cheap on the international market.

In addition, one of the worst, if not the worst, things that can happen to a country’s currency is deflation. That happens where the currency begins to increase in value to the point where people who have money limit purchases because of the risk that the future value of the things they buy may be lower than the future value of the money if they hold onto it. That’s one of the things that made the Great Depression so bad, and that’s one of the things the current monetary policy of the Federal Reserve is seeking to avoid.

Dec 21, 2012 5:48pm EST  --  Report as abuse
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