The bad consequences of a weak dollar are well known. But there are good consequences as well. The US needs to attract foreign investment and a weak dollar makes US investments look attractive to foreigners. Many bemoan this fact thinking that it matters if it is foreigners rather than Americans doing the investing. I don’t worry about that much; the source of the investment is less important than the fact that the investments are made. Yesterday, the US reported big inflows to US securities:
WASHINGTON — Foreign demand for long-term U.S. securities jumped in April, partly due to greater interest in Treasury notes and bonds, according to a Treasury Department report released Monday.
Net foreign acquisition of long-maturity U.S. securities totaled $102.8 billion in April, following purchases of $53.3 billion the month before, the Treasury report showed. Foreign net purchases of U.S. Treasury notes and bonds totaled $80.3 billion in April, up from $53.6 billion in March.
“The bottom line from this report is that overseas demand for U.S. long-term securities remained strong in April and in the first quarter of 2008, notwithstanding downward pressure on the U.S. dollar and extremely turbulent conditions in world financial markets,” Brian Bethune, chief U.S. financial economist at Global Insight, said in a research note. “This indeed is positive news overall.”
This is probably due to the fact that the dollar seems to have stablilized. Once foreigners become convinced that the dollar has stopped falling, they will be more comfortable investing here. Hopefully, we have reached that point.