The NYT has an excellent article by Professor Tyler Cowen on how a falling USD is not all bad news. The WSJ also has a related article that talks about how the USD may actually rebound.
The crux of both the articles is this that while the USD may have had a significant fall (~19.8%), it still isn’t grounds for fear. For one, it has definitely helped bridge the trade-deficit gap because imports coming into the US are becoming more expensive while exports going out from the US are becoming cheaper.
In fact, some of the people hardest hit by the falling USD are European businesses. As the USD falls, it becomes harder for them to compete in their own local regions because it is a lot cheaper to buy American stuff paid for in USD than it is to buy European stuff paid for in Euro.
Secondly, the WSJ talks about a 30% fall in the USD to equalize the trade deficit — and we’re almost at 20%. Now whether the USD falls another 10% remains to be seen, but once again, that need not necessarily be a bad thing all around.
Also, other economies in the world are in just as bad a shape (or worse) than the US economy. British, Canadian, German and French economies are also struggling, and the falling USD isn’t necessarily helping them, either.
Now, the Chinese are whole another story. That’s a mixed bag — while they have over a trillion in dollar-dominated assets, they aren’t too particular about dumping it all overnight, simply because of what it might do to their assets. It is in their best interests to have a strong dollar, especially since we are their largest consumer.
The biggest problem that’s likely to arise from a falling USD is of course worries about volatility. A shaky currency is not good for any economy, and ours is no exception. And of course, the middle-east, who make money off oil, no matter which way things go.
I think that over the next quarter or so, the USD will slowly stabilize, and that the fall in the USD that’s happened is not necessarily a bad thing for us.