Policy makers seem to be endorsing a weakened dollar after years of strong dollar performance. Some cheered, some winced, some ran for cover . . . and the rest of us, well, we remain as confused as ever.

Our dollar grew in strength during the latter half of the ’90s as our strong economy and booming stock market attracted foreign investors. They bought U.S. stocks and investments, driving up the dollar. At the same time, our relative affluence allowed us to purchase foreign goods at ever cheaper prices, creating a huge trade deficit. And, like past bubbles, the strong dollar bubble has finally burst, although the result, depending upon your value judgment, will not be as onerous as the stock market bubble bursting.

Meanwhile, foreign goods that used to be cheap will now be more expensive. Take the case of the announcement by BMW that they are rolling out a new “5 Series” automobile. A weaker dollar means we will pay more for the latest German import. This has a negative effect for Germany, but a positive effect for our economy, as this will make the automobiles of domestic manufacturers more price-competitive.

The rising prices of imported goods also help ward off fears of a deflationary spiral.

Administration planners see another plus. They hope our trading partners will respond to the weaker dollar by lowering their own interest rates or loosening fiscal policy. This would help fuel a global economic revival and eventually stimulate global economic growth.

Those running for cover remember past history of a dollar decline when foreign investors yanked their money out of the U.S., causing stock and bond prices to plunge and interest rates to skyrocket. That does not seem to be the case now, as no wide sell-off has occurred. According to the Fed, foreign investors seem to be standing pat with their U.S. investments, and perhaps doing some hedging in the currency markets by selling dollars.

In the short run, however, a weak dollar could put a drag on our economy, making imports more expensive and acting like a tax on consumption. This causes real wages to fall and could impede profits for firms dependent on buying goods and services from abroad, including raw materials and manufactured items like shoes and clothing.

It will take time for our economy and that of the world to adjust to these changes. So is the dollar strong, weak, or neutral? It depends on how you look at things.