Tuesday, March 18, 2008

Downward Dollar Delivers Blow to Outsourcing (Stas Holodnak)

Stas Holodnak on another consequence of the evils of inflation:

The slowdown of the American economy and the ensuing devaluation of the US dollar deliver gloomy headlines as timely as weather forecasts. The weakening currency may excite entrepreneurs anticipating increased exports. As well, it might have a stimulating effect for American professionals who are paid in return for our services.

However, the total effect is negative insofar as it will curb the trend toward the expansion of the international division of labor. Less outsourcing means higher labor costs for American business, which means less productivity overall.

Foreign workers are increasingly affected by what is called negative translation exposure — losing money while swapping their hard-earned but depreciating US dollars for their rising home currencies.

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