I would hardly argue that the dollar has been way overvalued in the last couple years. We are trading at par with the Canadian dollar. The Euro has been much higher than the U.S. dollar for a number of years. The fact that other countries want to sell us things is not just reflection of the the “strong” dollar but rather a reflection of the. The dollar was stronger in the late nineties, yet the trade deficit was much lower. I like Warren Buffet believe the root cause of the trade deficit is the low savings rate. While a lower exchange rate will temporarily increase exports, the root causes need to be fixed if we are to sustain any kind of improvement of trade balance.

If I am a farmer that puts my goods at a farmers market then I will continue to sell my broccoli for $1.00 / lb. I get my manure from the ranch down the road, I get my water from the clouds, and I get the light from sunshine. The only thing I had to pay for was the manure and that was made in America so it is bought with American dollars.

Now if I drive to the farmer’s market then I will most likely buy gasoline refined from foreign oil. This would explain why the price of oil is so high right now. It takes more dollars to buy a barrel of oil since the dollar has devalued.

The effect this will have is that it will reduce our deficit since we are a debtor nation, our debt just got cheaper. I already said it will be less profitable for imports and if manufacturers raise prices then it will be cheaper to produce goods in America. It also would be cheaper for foreign countries to buy goods exported from America.

The devaluing of the dollar is not necessarily a bad thing. Our currency has been way overvalued due to the poor administration of it in the 1990s. A strong dollar is indicated by the mass of countries that wanted to sell things to Americans. A devaluing dollar will bring a mass of countries buying things from Americans.