Is the European debt crisis good for the American dollar?

Is the European dept crisis good for the American dollar? It seems that the Euro has been over inflated for years, so is this debt crisis going to level out the Euro, and make the dollar stronger?|||It depends on what you mean by good. At least in the short run, and you can see this happening now, there is something of a "flight to quality" that is driving people to purchase U.S. debt and buy dollars, which is strengthening the dollar. In some ways this, is good, as it makes it cheaper for Americans to purchase from Europe, for example. In other ways, it is bad, as it makes U.S. exports to other countries more expensive for them to buy.





In the longer term, it depends on what ultimately happens in Europe. A minority see the Euro being abandoned, while the more common belief is that Eurozone will muddle through one way or another, keeping together if only because dissolving the Euro would be the worse of two evils. If the Eurozone economies as a whole go under trying to bail out Greece, Spain, Italy, etc., that would be unequivocally bad for the dollar and the world as a whole.|||If 'good' means that the US$ appreciates against the Euro, the answer is yes. If 'good' means for the US export industry, the answer is no.





It seems that the European export industry is the real beneficiary of the Euro depreciation: Exports from the 16 European nations increased by 24% in March, the largest increase since the Euro was created in 1999. If Europe's current account surplus grows, there must be a corresponding adjustment elsewhere. Either the current account surplus in countries like China and Japan must fall or the current account deficit of countries like the US must grow even more. The European debt crisis seems to impose significant adjustments in the global trade balances, which some countries may try to resist: China and Japan will likely try to resist a reduction of their exports, the plans of the US government to double the exports over the next five years do no longer seem realistic and create an incentive to increase tariffs and import restrictions in the US.





If every country tries to follow a policy avoiding the adverse effects from these adjustments, it will end up in a serious global balance of payment crisis, because such policies only work by pushing cost of the adjustment to someone else; and coming out of the worst recession since the Great Depression, nobody is prepared to take the burden of these adjustments, jeopardizing the weak economic recovery in their country.|||Short term, yes. Demand for the dollar increases whenever there is a lot of worldwide economic panic. It is seen as a safe harbor relative to other currencies.