Market Overview

Is Krugman Right to Praise the Dollar's Decline?


Economist and Nobel Laureate Paul Krugman published a piece in the New York Times Thursday, in which he lauded the recent depreciation of the U.S. dollar against other currencies.

On the boost to manufacturing, Krugman writes, "America's industrial heartland is now leading the economic recovery. In August 2009, Michigan had an unemployment rate of 14.1 percent, the highest in the nation. Today, that rate is down to 10.3 percent…a huge improvement. I don't want to suggest that everything is wonderful about U.S. manufacturing. So far, the job gains are modest, and many new manufacturing jobs don't offer good pay or benefits…Still, better to have those jobs than none at all."

Krugman then ties the manufacturing boom to the depreciation of the U.S. dollar, writing, "What's driving the turnaround in our manufacturing trade? The main answer is that the U.S. dollar has fallen against other currencies, helping giving U.S. based manufacturing a cost advantage."

Krugman has a valid point in that the U.S. has seen improvement in its manufacturing sector. But at what cost? The depreciating dollar may be the cause behind the recent increase in the price of gasoline.

Traders looking to play a weaker dollar going forward may wish to consider PowerShares DB US Dollar Bearish Index (NYSE: UDN). UDN may do well if the dollar is in a bear-market.

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