After reviewing Wednesday's post, Bush administration pushing dollar down or allowing it to fall? IMF chief sounds alarm, I thought of one more point that is of paramount importance. Either many people are ignoring or do not understand how a devalued dollar facilitates our giving away the country wholesale, even if in the short term it appears to help with our trade deficit.
This concept does not seem to have resonated in Washington and, along with his advisers, our president is either ignorant or avoiding the issue altogether because he does not want to discuss the remedy: everyone tightening their belt financially and taking some economic pain.
Warren Buffett has sounded the alarm many times about this subject, and I will, too. When the dollar falls in value, say 30% (each currency varies), that gives foreign investors 30% more buying power here. Yes, it is true they buy more when our goods and services are "on sale" (and we buy less of theirs). However, what if instead of buying perishables, they buy income-producing property and companies. As long as this trend continues, they would be wise to buy more and more.
A simple example: They buy a company that makes widgets in the United States. They are able to sell (export) more widgets along with their American counterparts because of the devalued dollar. Who makes a higher return on invested capital? The foreign investor, of course, because they paid 30% less for the widget company!
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