The economy may be getting a boost from a trend that sounds a little bit counterintuitive: the weakness of the dollar. In the past quarter, the value of the dollar fell by 8.5 percent in the Dollar Index, which tracks it against the yen, euro, British pound, Canadian dollar, Swiss franc and Swedish krona. That's the biggest quarterly drop since June 2002.
In a sense, that is also what the Fed would also be doing early next month if it buys up Treasurys, as Fed chair Ben Bernanke has signaled recently. If the Fed buys up a significant amount of these bonds - one estimate holds that it will purchase $600 billion worth - that will have the effect of injecting that amount of money into the economy. Basically, that's $600 billion in the pocket of whoever the Fed buys those bonds from.
And one of the effects of that is to put more dollars into the economy, thereby lowering the value of all of them. Just the speculation that the Fed would take this move drove the dollar last week to its lowest level versus the yen in 15 years. With a weaker dollar, our exports will cost comparatively less for foreign buyers, and they'll be able to snap up more of our goods and services. That's the plan, anyway; we'll see how well it works.
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