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How is a falling US Dollar related to the US Economy?

A user techy246 posted this in the forum at the end of 2006. We’re now moving it here.

I am trying to make sense of all the talks in media about a recession in 2007 and falling usd.

so right now dollar is in a bad position because:
1. huge trade and fiscal deficit..being funded by china and others….who dont want any more usd
2. slowdown in economy and housing which means interest rates has to be lowered.
3. people moving out of investment to some other country

to keep the dollar strong, FED will have to increase interest rates….but thats almost impossible because it will kill the already weak housing sector and the economy.

that means i am betting that FED will decrease interest rate in second quarter of next year….to help the economy……and it will let the dollar fall…… i right??

i am also trying to think the damage of falling dollar
1. increased cost of import………but thats going to be a plus since it will increase local manufacturing…
2. falling dollar is also going to reduce debt by the same percentage… thats also a good thing…

can someone list the negatives of falling dollar in US economy?

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