Sunday, May 16, 2010

Good News and Bad News About a Strong Dollar

As I write this, my son Drew is in Sevilla, Spain visiting a friend en route to a summer-long study and internship in London. Europe’s economic woes have, in this case at least, come to our family’s aid in the form of a stronger dollar versus the euro and the British pound.

When we visited Great Britain in 2007 for Drew’s high school graduation trip, a U.S. dollar would buy only about half a British pound, and we groaned about the sky-high prices (the equivalent of $20 for a hamburger). In today’s reality, however, a dollar buys almost seven-tenths of a pound. That means that Drew’s purchases will cost about 27% less than they would have three summers ago.

While a strengthening dollar is good news for Drew and anyone else traveling abroad these days, it could be bad news for our country’s overall economy. A stronger dollar means that our exports become more expensive for other countries’ consumers, which could lead to further reductions in our manufacturing base. It could also lead to a resurgence of imports into the US, which could worsen our trade deficit.

This economic stuff can be tricky, can’t it? Good news can be beneficial in one respect while being harmful in another. Whaddya gonna do? From a selfish perspective, I’m grateful that Drew’s summer abroad will be a little less expensive than it might otherwise have been, and my national pride likes the idea of a strong greenback. But as an American pulling for the recovery to continue, I’d like to see foreign consumers buying goods and services that we create in the Land of the Free.

Enjoy your week!

No comments:

Post a Comment