The Artificially-Strong U.S. Dollar is Hurting Our Economy

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A strong U.S. dollar is generally seen as a good thing for the economy, but there are exceptions. The U.S. dollar may look strong right now, but the underlying fundamentals of our economy indicate that it should not be. We are deeply in debt, running a huge balance of trade deficit and are seeing anemic economic growth. These are not the markers of a country that should have a strong currency. Most experts agree that an artificially strong U.S. dollar is actually worse than a weak dollar, exacerbating our already dire economic situation.

A naturally strong U.S. dollar would be a sign of economic health, something which the United States does not have at this time. As it stands, the dollar is only relatively strong because other currencies such as the Euro are unstable. This is a temporary situation, and once it is resolved the underlying fundamentals of the U.S. economy will bring the dollar back down, and the inflationary pressures created by government actions such as quantitative easing will be felt once again. John Williams’ Shadow Government Statistics report echoes this idea.

Fundamentals impacting a currency (U.S. dollar here) are viewed in terms of conditions relative to major trading partners. The circumstances will be examined item-by-item in the upcoming Special Report:

Underlying Fundamentals Relative Condition Impact on USD
Trade Balance Severe Deficit Negative
Interest Rates Extreme Low Negative
Economic Growth No Recovery/Low Negative *
Inflation High Negative *
Political Stability Low Negative **
Fiscal Condition Worst of Developed World Negative

* Not fully recognized in the markets
** Euro area concerns temporally taking global attention

“I still expect the euro weakness versus the U.S. currency to be relatively short-lived, eventually reversing as dollar selling kicks in,” Williams said. “The timing remains open, but the underlying fundamentals remain in place against the dollar—they do not get much worse—and strongly favor the precious metals and the healthier Western currencies.”

This artificially strong dollar may be making our economic recovery even harder; it makes imported goods relatively cheaper, but makes exports harder to sell to foreign purchasers. Our trade deficit is already a drag on our economy, thanks to our disastrous free trade policies, and this is only exacerbating the situation. American consumers can purchase foreign goods more cheaply, but the money they spend is going overseas rather than staying in the United States. This also hurts U.S. businesses that cannot compete with cheap imports and cannot export either thanks to the artificially strong dollar.

Ultimately the dollar will weaken because the fundamentals of our economy are not strong. This weakening may help our trade deficit somewhat, but it will never be a substitute for a responsible trade policy that focuses on helping American businesses succeed. A truly strong U.S. dollar also makes imports cheaper and exports more expensive. The difference is that a naturally strong dollar is reflective of economic health, and we will not have that unless we have a trade policy that can protect us from a flood of imports that we could be producing ourselves.

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