Meltdown 101: Is a strong or weak dollar better?

The dollar has strengthened against most other major currencies for much of the second half of the year. It recently reversed course, but the big picture remains the same: The Thomson Reuters U.S. dollar index, which measures the dollar's value relative to the euro and the Japanese, Canadian, British, Swedish and Swiss currencies, is still up more than 10 percent from its lows in March.

All the while, the economy has been wallowing in a deepening recession.

Does the strong dollar have anything to do with the nation's economic woes? What would be better for the economy right now--a stronger dollar or a weaker one?

Here are some questions and answers about the strength of the dollar:

Q: Should we be rooting for a stronger or weaker dollar right now?

A: In a broad sense, a weak dollar is probably favorable while the economy is ailing, since it would make U.S. goods cheaper to consumers outside the country.

"The dollar is really a shock absorber," says Brian Bethune, economist at IHS Global Insight. "When domestic economic conditions are weak, it goes down to stimulate demand for U.S. product overseas."

Q: So why have we seen such dollar strength in recent months?

A: The dollar, which had already been on a multiyear losing streak, began to weaken further in late 2007 and early 2008 as it became clear the U.S. was heading into a recession. But as the global economic outlook soured, investors flocked to the safest assets around: U.S. Treasury bills, notes and bonds. (In other words: investments in U.S. government debt.)