Why a Strong Dollar Matters to You

[Are_grits_groceries]

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Strong & Weak Dollars Defined
For those who are not already aware, let’s define what a strong dollar actually means. Very simply, a strong dollar is one that, “…can be increased for a large or growing amount of foreign currency”, according to InvestorWords.com. Typically, a strong dollar is seen as a good thing because it means American citizens and businesses can get more foreign goods and services for the same amount of money. An American citizen could bring $1,000 to France, for example, and buy more there than she could here. This matters because imports are usually paid for in the currency of the country doing the importing. Consequently, America as a whole tends to import far more goods and services than it exports for however long the dollar is stronger than the currencies of the nations we trade with.

A weak dollar, as you may have gathered, is one that, “…can be exchanged for only a small or decreasing amount of foreign currency.” A weak dollar is usually seen as a bad thing because it does not stretch as far internationally as it once did. Indeed, the opposite is true: foreign currencies buy more of our goods and services than we can buy of theirs. But while imports are usually purchased using the importing nation’s currency, exports are paid for in the currencies of the exporting country. Therefore, a weak dollar has the ability to change the entire flow of trade that occurs when the dollar is strong. When the dollar is weak, America as a whole tends to export more goods and services than it imports.
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While a naturally stronger dollar (that is, a dollar whose value rises because demand for American imports rises) is still beneficial, a dollar made stronger by political fiat and interference can actually slow an economic recovery by, “…reducing demand for our exports relative to our demand for imports.” The consequences are potentially disastrous as far as recovery is concerned. The deficit of trade that results from our artificially strong dollar can “…divert demand to our trading partners”, thereby diminishing demand for American products and services at a time when that is, by definition, the very thing we need for a true recovery. Of course, McTeer concedes that being in favor of a “weak” dollar (even within certain tightly circumscribed conditions and circumstances), “…still doesn’t seem right” to many observers. To think about the issue and the forces at work more clearly, he suggests substituting the word “competitive” for “weak”, which eliminates the negative emotional connotation.
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The Takeaway
To recap, we have learned that “strong” and “weak” dollars are not categorically good or bad for America as a whole. Certain segments of the economy are hurt or helped by either, depending on whether we are in a recession or not. Furthermore, during recessions, a strong case can be made that a “weak” dollar provides a needed boost to the sagging economy by promoting increased exports of our goods to other countries. Largely, the words “strong” and “weak” obscure the deeper meaning of the issue, which is whether (and when) it is better for our currency to be worth more or less than foreign currencies.

http://www.mint.com/blog/trends/strong-dollar/

Now you know.

[ThomWV]

1. Try to tell a Farmer or a welder working the line building heavy equipment

A weak dollar means strong exports. We export agricultural products and heavy equipment. When the dollar rises exports of those two items decreases and jobs are lost in those two economic sectors, Agriculture and Durable Goods Manufacturing. On the other hand when the dollar is strong so are imports, and all you have to do to see it is walk into any Wal Mart and count the items on the shelves.