Break it down. I’m kind of lost.

I understand that the Europeans and Asians are invested in our financial market and the European export will be affected, but the weak dollar is making euro stronger, so wouldn’t the US recession boost their economy in a way too?

 

  • SageConstableOdo 1:05 pm on July 29, 2010 Permalink

    A weak dollar is not good for Europe. A weak dollar means a strong Euro, this is hurtful to European businesses as European exports are reduced (internationally, they are too expensive for foreigners to buy). Furthermore, European consumers make foreign purchases instead of domestic purchases because it is cheaper for them. Best example is to look at Canada, the Canadian dollar has been getting stronger and stronger. This Christmas season, Canadian retailers were hurt really bad because US consumers would not make expensive purchases in Canada, and the Canada consumer would make their purchases in the US as it was much cheaper than purchasing in Canada.

    Keep in mind that a recession is not necessarily going to create a weak dollar. A weak dollar is due to the continued lowering of interest rates (which may or may not be lowered during times of recession). The lowering of interest rates increases the supply of money, thereby reducing the value of the dollar. There will be a point where the Fed will stop lowering interest rates because they do not want to spur on too much inflation.

    If we run into a recession coupled with high inflation, things are going to look very ugly.

  • bob shark 1:05 pm on July 29, 2010 Permalink

    Europe has it’s own economic problems, that are not just caused by problems in america