The impact of a weak dollar on M&A activity in the United States isn't a surprise in financial and business circles. Foreign companies now have the opportunity to buy U.S. companies, real estate, and other assets at what amounts to a discount. This may not be news, but judging from conversations I have been having lately it may be news to much of the general public.
When George H. W. Bush entered the White House in 2000 the exchange rate between the dollar and the euro was approximately 1.171. At this rate the dollar was worth 30 percent more against the euro than it was the day the euro was introduced at the end of 1998, which was 0.857. The average rate this month has been 0.643. This means that the current administration has been at the wheel for a 45 percent decline in the value of the dollar against the euro. When Bush entered office the dollar was at an all time high against the euro, and when he leaves it will likely be at an all time low.
In an an article for The International Economy, Lawrence Lindsey, who was the chief economic advisor during Bush's first year in office, said the administration was committed to a strong dollar. He wrote "the benefits of a strong currency for our country far outweigh the costs ... a commitment to a stable, non-inflationary currency, a good business environment and open trade will remain the cornerstones of American economic policy." Apparently things didn't work out as planned. Of course, Bush dumped Lindsey, along with Treasury Secretary Paul O'Neill, so he can't be blamed for the administration's failure to protect the dollar.
Lindsey had some other notable statements during that first year. In a September 2002 interview with the Wall Street Journal he estimated that the Iraq invasion would cost the U.S. $100 to $200 billion. He was practically attacked by the White House, which estimated a total cost of $50 to $60 billion. Donald Rumsfeld, with characteristic grace and sound judgment, called Lindsey's estimate "baloney." The Iraq war has cost $500 billion to date and continues to cost $435 million a day. The Iraq war is one of the Bush-driven factors that has sunk the value of the dollar.
When Americans travelled to Europe during Bush's first term they inevitably commented, upon returning home, about the extraordinary price of a cup of coffee. It typically followed this script: "Can you believe a cup of coffee costs three-dollars? Coffee is more expensive than gas!" Gas cost north of $5US at the time in Europe, but if they didn't rent a car they didn't know that. I can imagine what they are saying now, assuming anyone can still afford to go to Europe. But that point of view is all wrong. A cup of coffee isn't expensive in Europe, it is just really cheap in the U.S., and so are U.S.-owned companies.
To learn more about the present and future of the dollar one source to consider is The International Economy, which has dedicatd to the Spring 2008 issue to the subject.