CHANDLER: Whenever you sell one currency you have to buy another currency — there’s no getting out of the currency universe. So the dollar’s decline is reflected in [the fact that other county’s currencies] are trading near record highs.

Does a decreased dollar value affect product development and investment in the U.S?
RESLER: It probably encourages it to the extent that the weaker dollar makes U.S. products more attractive in the international market — businesses may be encouraged to invest more in research and development to develop products to meet that future demand.

On the one hand, what the weaker dollar does by promoting demand for U.S. made products is encourage capital spending and research and development. On the other hand, the fact that we can sell things more easily may remove some of the competitive necessity of engaging in that kind of activity.

Whenever you sell one currency you have to buy another currency — there’s no getting out of the currency universe.

CHANDLER: Sometimes people think that a weaker dollar is going to scare foreign investors away from the U.S., but what really happens is it seems like they change how they invest in the U.S. With the weak dollar and threats of protectionism from either side of the aisle, companies in Europe and Japan are responding is to get inside the U.S. and source more in the U.S. Foreign direct investment was up sharply in the second half of last year compared to the second half of 2006. So how will companies remain competitive? First by squeezing their profit margins rather than passing on their costs; secondly they will locate more production and sourcing in the U.S.

How does the devaluation of the dollar affect our daily lives?
RESLER: The strength of the dollar is probably contributing to the high price of oil and the high price of other commodities because those are all denominated primarily in international markets in dollars and by making those dollars cheaper to foreign buyers they may want to buy more of those goods so that adds an extra impetus to the upper drift in oil and commodity prices.

CHANDLER: It doesn’t. I’d say it’s a nice thing to watch in the news, but for most of us, it doesn’t affect us. For our businesses, our employers — the stock market made a record high last year when the dollar was weak. So I’d say there’s very little relationship between the dollar, or the currency, and the underlying economy. For example, Japan looks like it’s on the verge of a recession and the yen is very strong.

Sometimes people think that a weaker dollar is going to scare foreign investors away from the U.S., but what really happens is it seems like they change how they invest in the U.S.

How does it affect the assets of the U.S., stock ownership, company ownership, and ownership of banks and financial institutions?
RESLER: Foreigners who have bought dollar-denominated assets in the U.S. are now saying the value of those investments fall and it makes it more difficult for us to buy assets overseas because they’ve gotten much more expensive. It makes our assets cheaper but think of it as if you bought a house three years ago — you’d look at the devaluation of your property and feel some pain but if you just came into some money and you’re looking to buy into the housing market now, you might look at the prices and think they’re kind of cheap.

CHANDLER: One thing that happens is when you have weaker dollar some people who have to keep their money in the U.S. — some types of foreign investors who have to allocate “x” percent to the U.S. — they tend to prefer equities and real assets over bonds. For American our assets overseas tend to increase in value as the dollar drops.

How can the value of the dollar be bolstered?
RESLER: I think ultimately the value of the dollar is going to reflect the underlying fundamentals of the U.S. economy, which I think in the long run, are relatively good. In the short, they’re not so hot and we’ll have to muddle through this. There are some who argue that the US Treasury or Federal Reserve could intervene in the foreign exchange markets buying up dollars in the open market and driving up its price, preventing it from falling further. The problem is that the Federal Reserve, for all of its resources, has less than a trillion dollars in assets and this is market that is upwards of 50 trillion a day traded — but it’s an enormously large market far larger than the resources of any central bank or any treasury so the capacity to artificially influence the currency’s value in opposition to market forces is usually a futile exercise. But there are those who argue that a different set of policies in the U.S. might lead the dollar to be stronger, like if we were tightening monetary policy now to protect the dollar from falling we might keep that from happening but we might make the recession much worse. So that’s not really an option right now.

CHANDLER: First, the dollar is already in the process of bottoming against two of the G 7 currencies [Canadian dollar and the British pound] and it is also bottoming against the emerging market currencies. As those countries begin cutting interest rates like the UK has and will continue probably to next week and Canada, which probably cuts rates again later this month. As other countries begin easing monetary policy and I’m assuming that the U.S. economy also begins showing better signs of strength in the second half of the year in response to negative real interest rates and some fiscal stimulus that the turn of the cycle is coming and that’s probably going to work in the U.S. dollar’s favor.