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YSO Capital Management

May, 2009
The dollar has been fairly strong lately.  Do you think this will continue?
Despite our government’s consistent emphasis in maintaining the value of the dollar - which is important in its continual attempt to borrow money from the rest of the world -, I believe that our current administration is ultimately leaning on the benefits that come with the depreciation of the dollar.  Firstly, our country has a tremendous amount of debt and paying it off with depreciated dollar is a way to force other countries that hold our treasuries to share in the burden of our economy.  Secondly, it encourages “buy America.”  The idea is not necessarily just to make our exports cheaper to foreigners as the dollar devalues.  The key is to make imports more expensive.   The reason is that we are the world’s biggest consumer and the government wants to keep consumption within America.  Doing so leads to another goal of the administration, which is lowering the unemployment rate.  For example, food production such as tomatoes has increasingly been outsourced to Mexico because the cost of production is cheaper there.  A depreciated dollar will make the costs of producing tomatoes in Mexico more expensive and may shift some of these farming employments back into our country.  Another benefit of devaluing the dollar is that inflation leads to increased spending by consumers.  People will be forced to spend today as their buying power decreases tomorrow.  It will certainly give our economy a boost because two-thirds of our economy is comprised of consumer spending.  Lastly, printing money excessively will inflate assets prices as more money is being circulated in our economy.