Read The Dollar Is Falling, and That’s Good News By TYLER COWEN (NYT 12/2/07)

Why does it “look bad” when the dollar is weak or falling?

We are, after all, used to judging ourselves against others — comparing our salaries with the earnings of our peers, and our homes with those of our neighbors. We’re used to thinking it is a big advantage to stand at the top of a numerical list.

If not its currency, what truly determines the prosperity of a nation?

The measure of a nation’s wealth is the goods and services it produces, not the relative standing

of its currency. Take a look at 1985-88, when the dollar lost more ground than in the last few years. Those were good times, and the next decade was largely prosperous as well.

How does the weakness of the dollar reflect the success of “other regions” (Europe, Canada, China)?

If these regions are more productive, and if they produce better goods cheaper, American will choose to buy more foreign goods. Foreigners in turn will buy less American goods. This will create an excess supply for the dollar, as the demand for the dollar and American goods is falling.

How does the falling dollar cause inflation in the US? If this was true, is it an issue for the US economy?

A falling dollar does mean price inflation in the United States. Just as it costs more for an American to buy a fancy meal in Paris, so do French wines and German cars have a higher markup when they are sold in New York.

But imports are only 16 percent of the American economy, and most foreign suppliers have been reluctant to risk their position in the American market by raising prices a great deal. And: Wal-Mart serves a more working-class clientele and it is stocked with goods from Asia, where currency values have remained weaker against the dollar.

What are the advantages of a weak dollar? Which part of the US economy is booming due to the weak dollar?

Of course the lower value of the dollar also makes American exports more competitive. American economy is continuing to expand, and this is largely because of the strength of our export sector, as encouraged by a low value for the dollar. Much of Middle America is booming because of its ability to sell tractors, food stuffs and other products abroad at favorable prices.