I think devaluing the dollar is counter productive

I see a lot of arguments about how a cheaper dollar will encourage exports and discourage imports. While this is true and I agree on this premise, I believe the one critical aspect that is being left out of this equation is the amount of oil the United State imports.

As production levels recover and return to normal a falling dollar will mean that the United States will pay more dollars for the oil that it imports. Everything in this country requires oil. Our entire economy is based on oil. As oil becomes more expensive to import oil in terms of dollars, I fear that the gains that are made by the decrease in dollars in terms of exports will be erased and it will result as a neutral gain, small loss, or small gain. Remember one of the triggers for this financial crisis was high prices in energy which contracted demand almost overnight and raised prices.

Now there will be those that will argue that a reduction in the US's demand on importing oil would be a good thing. On this I agree in the long term. However, if this is really a recovery initiative than you maybe a step forward to take a step backwards. We do not have the public transportation, agricultural, or energy grid infrastructure to handle this. State and municipal budgets are maxed out. People who are already struggling can't just go out and buy Hybrids.

The only way to combat the unintended consequences of a falling dollar would be a Federal Level massive program to build public transportation (municipal and light passenger rail) and increase heavy rail for industry (replace a good deal of trucking).

rather than bonds. Because China is a potential "enemy" its trade surpluses were limited in terms of where they could be recycled -- ie what kinds of investments they could make. Pretty much the only dollar investments they could make in the US were t-bills and mortgage backed (and other asset backed) securities.

By contrast, when the Japanese and Gulf states had gigantic surpluses, they invested in stuff here -- factories, buildings, services, movie studios, whatever.

If the Chinese were allowed to invest that trillion in production here, we could grow our way out of this slump rather than cheapen our way out through devaluation.

That said, some long term devaluation will be needed, and I don't worry so much about oil, because frankly, much of the rise in oil prices is speculative. It is based on hoarding and speculation. Production and consumption have not changed much since Katrina -- when the oil companies used pipeline disruptions to gouge us -- and in fact they are better than they were. So if the Feds grew a pair of balls and cracked down on speculation and hoarding or passed an oil windfall profits tax, gas prices would fall to normal levels.

"The only way to combat the unintended consequences of a falling dollar would be a Federal Level massive program to build public transportation (municipal and light passenger rail) and increase heavy rail for industry (replace a good deal of trucking)."

This is exactly what we need, along with investment in new energy technologies, to not only address the problems you point out but to revitalize the economy in general.

If you reduce the dependency on imported oil.

There really is no need for trucks to be traveling from Ohio to California. Rail is the much more sensible and cheaper alternative in the long run. Use trucks for interstate deliveries out of distribution centers.

Cheap gasoline reduced the dependence on rail and moved it to trucking.

I don't understand how that could be sustainable.

You can't occupy 38 countries with large military bases and run a trillion dollar deficits
You can't fight a war in a country on the opposite side of the world and run huge deficits
You can't outsource your manufacturing capacity and be energy dependent on other countries and have a consumer economy
You can't devalue your currency when a good portion of your trade deficit is a fuel source from foreign nations with no public transportation infrastructure.
You can't allow the top 1% to hoard most of the economic and productivity gains and expect mortgage payments to continue to trickle up to the top 1%.

I could go on and on how the system is not sustainable.

Sacrifices and Investment in the future are going to have to be made in the next 5 years. At this current time in our history neither one of these are politically popular.

A cheaper dollar makes money more expensive. When you have $57t in public and private debt, this is one thing you can't afford.

Catch 22

Even though I'm eager to see some job growth out of - well - anything, you make a good point about unintended consequences. It's pretty clear we have a long climb ahead in rebuilding the middle class. But oil and currency go up and down for many reasons - I still think the priority now is to get people back to work, and take it from there.