I would like to express my sincere appreciation to Darrell Canby for his article: "A weak dollar still presents opportunities" in the Daily News Tribune of June 30, 2008.
What a marvelous and ingenious idea of explaining in simple terms what has always puzzled some of us who may not comprehend the dynamics that control these events. I am the controller of a company specialized in wholesale customized tours to Europe. I have been crunching numbers all my life, yet I have found too intricate just wanting to expose my queries for fear that I may find the answers too difficult to digest.
What makes our dollar weak? And what causes foreign currencies to fluctuate? Why do the interest rates go up and down? What causes our economy to thrive or to downturn? Everything you always wanted to know about ... but were afraid to ask.
Just like so many of you, I don't know much about what causes the economy, inflation and foreign currency to change. But finally, I have found an article that explains these amazing, complex world finance mysteries, written in a way to appear comprehensible even to simple minds like mine. I have even put it in a condensed form and e-mailed it to our employees. I invite all of you to read this article by Darrell Canby which I consider a true work of educational enlightenment.
Here is the equation that I was able to extract from Canby's article. A weaker dollar causes a higher cost of imported goods, which in turn creates a trade deficit. A trade deficit generates inflation which makes us spend less on unessential goods. This creates a recession and interest rates get lowered, causing the dollar to become weaker in respect to foreign currencies, and the cycle goes on. Primarily, these are the factors that have an impact. They may not necessarily be in this sequence, but each factor generates the other, as in a chain reaction.
Soon or later the dollar will be strong again, but what's the dollar's relationship with other currencies? You will understand that the causes are all related, as in a vicious cycle, which brings to mind the everlasting dilemma: who came first: the chicken or the egg? As Mr. Canby puts it, "... while the weak dollar and rising inflation are troubling, the economy is cyclical and problems like these can work themselves out. Because the dollar is weak, we should be exporting more and importing less, which will put the trade deficit back in balance, strengthening the dollar. The challenge we face is that no one knows when the dollar and inflation will reverse direction."
Thank you Mr. Canby for enlightening me, and I am eager to read more articles from you.
RAFFAELE GUELI, Waltham
