What the Dollar’s Rise Tells Us About the Global Economy

The U.S. may have more to gain from progress in Europe and Japan than from advantageous exchange rates for American companies.

Comments: 49

  1. American corporations are not invincible against higher dollar as we think . Higher dollar against major currencies will surprise Wall Street negatively. Fed will soon be pressured to cope with further declining inflation rate, perhaps possible premature rate hike before economy fully recovers. Our economy is not as strong as we think because our past GDP growth is less than 2% a year since 2008, particularly 1.2% growth for the first half this year. We are lucky that policy mistake of austerity by the Republicans' misguided zeal has not damaged our economy as much as that of Europe or Japan because Fed's QE has compensated this mistake to some extent. Still, near permanent damage is done as Larry Summers has verified this using Fed's economic model.

  2. Japan's problems are related to an aging and shrinking population. The current Japanese PM has been pumping money into the economy (basically QE). Everything went fine until they raised the sales taxes (which are regressive) in order to try to balance the budget.

  3. As Dean Baker keeps telling us over and over, high dollar policies, favored by members of the Washington Consensus, keep pushing manufacturing and jobs overseas. Paul Craig Roberts keeps telling us that this is how the real American economy was lost while neoliberals keep telling us that labor arbitrage (seeking the lowest wage level abroad) is the same thing as "Free Trade."

    It would be nice if economic reporters in the NY Times would mention this as context next time they write an article about the rising dollar. Most Americans think that a rising dollar is another source of pride and evidence of American superiority. In fact, it is just the opposite.

  4. What would be nice if the NYT would report on the trade agreement being negotiated with the EU. As it stands now thousands of jobs will be lost on both sides of the pond and business will be able to negate National Laws to their benefit. Citizens in most of the EU lands are vigorously protesting the treaty known and find out why.le itas TTIP. Goog

  5. NY Times has turned into a cheerleader for the status quo. They can't print anything that really matters. I come here for the comments. It is nice to see they at least print comments that are critical of themselves. When you stop seeing comments that question the paper's lack of candor then it is game over.

  6. All people on earth should be concerned with the level of influence Monsanto has in these trade agreements. Not a peep from the NY Times or the mainstream media. The world is doomed if the American people do not get this entity run out of business. When anonymous riders can be placed on bills protecting Monsanto and Congress considers a ban allowing us to know whether or not the food we consume is GMO something is up. Why can't the American people know what there government is up to? These treaties are negotiated in secret because they benefit no one except the multi nationals. I have written to the representatives involved (Schumer is one) and they will not even respond. I will be surprised to see this comment make it through the approval committee- their bosses may not like it.

  7. Who loses as result of this appreciation of the dollar? Well, American workers in export industries and industries and services that compete with imported goods and services are going to feel "downward" pressure on their wages and benefits so that they can remain competitive with foreign labor that is now 10% cheaper then it was six months ago. And this will indirectly effect the wages and income of other workers as employees with stagnant or falling real incomes, or unemployment if the firm goes out of business or cuts staff, shift into personal service jobs that are not subject to foreign competition. The steel worker who is retrained to become nursing room orderly will be competing for those openings and keeping the low pay for an orderly low. It is reminder that the change of conditions in the current U.S. labor market from in the 70s, 80s, and even 90s. A worker may not have much leverage to demand pay increases when involved with the far greater competition that exists with foreign labor even if the labor market appears to be tightening.

  8. Dead cat bounce in the dollar. Will allow fed to raise interest rates without fear of inflation, setting us up for a double whammy later.

  9. When the Euro was first introduced the rate was $1.26 per Euro -- Same as today.

  10. No higher that 1.1960 or so on the first day. After that, it dropped for several years, bottoming at .8231,

    From the, many years straight up to about 1.4700, with a dip during the 2008-2009 crisis.

  11. "Americans" who depend on having decent jobs in order to make a living probably will not be taking the rising dollar in stride. Those who inherit their wealth or who "earn" it at a rate that is hundreds of times what the rest of us are paid, will now be able to hoard even more of it in their tax-free offshore bank accounts.

    There are always winners and losers when it comes to economic policy, true. It's not coincidental, however, that time after time the winners already have obscene amounts of wealth and the losers don't.

    That's all about power, and who gets to make economic policies that determine winners and losers. The author makes it sound as though "economic fundamentals" are forces beyond our control. They are only beyond the control of the 99.9 percent, however, while fully under the control of the .1 percent, who always seem to end up on the winning side of these "economic fundamentals."

  12. Strong dollar is definitely a lust, and routinely a love letter, from the planet's investors.

    Japan has taken the worst beatings in currency markets yet they remain very tough in many industries.

    Fixation on currency markets is not a sound investment strategy. If it were gold prices would be a lot higher and stay that way.

    Chinese currency manipulation is out of desperation in the face of other huge problems facing Beijing every day. Buying up American assets is a fun part of a very tough situation.

  13. European countries account for less than 15% of all US trade activity while trade with Asia and the Americas is nearly 80%. A weaker dollar against the Chinese RMB will help increase US exports to what will soon be the largest economy in the world. A growing middle class in the developing world is good in many ways, especially in the stability that comes from the exchange of goods and ideas.

    The RMB devaluation only occurred after relentless pressure from US foreign policy and is far more important to the future than all of the chaos in the former Russian and Ottoman Empires.

  14. 'European countries account for less than 15% of all US trade activity while trade with Asia and the Americas is nearly 80%.'

    Yeah - but the fascination lies in the fact that nearly all the 'good stuff' comes from Europe -
    Now what could that mean?

  15. According to the chart accompanying article the RMB has gained in value vs. the dollar since July...but only fractionally, perhaps 1%.

  16. A good time to take that trip to France.

  17. This currency war due the a hidden world order was caused and directed mainly at the US dollar.
    Now the US has won the currency war between 2001-2013 against all major currencies in the world because of its devaluation which has help the FED via its QE policy.
    With the dollar regaining its value against other currencies, you can be sure that, the US will lose the war because the hidden world order on currency is playing a strong dollar because of current uncertain cyclical crisis that they are unable to predict.
    So the ongoing appreciation and promotion of the dollar becoming strong from this Order is a loose fool screw appreciation.
    God Bless America

  18. Typical.

    I'm referring to comments here rather than the article, which mostly reveal ignorance re currency fluctuations and real world impacts.

    Stop it. To those us trained as economic analysts, your pretensions are beyond belief. " hidden world order"? "neo-liberals"? "surprise Wall Street"? "Monsanto" ?? "dead cat bounce"?

    Glasseyed seems the only one commenting (so far) who "gets it". The rest of this comes off as self-absorbed bloviating.

    Just stop it. Re-read Krugman's essays here and learn something, for crying out loud.

  19. 'Re-read Krugman's essays here and learn something, for crying out loud.'

    Especially the ones where he suggests for Draghi to do what Draghi did!

  20. and I always suspected that US economists like to shoot themselves in the foot?
    -(which isn't too bad - as Mr. Irwin writes - there is always a way to see the positive side...)

  21. Draghi see, Draghi do?

  22. 'What the Dollar’s Rise Tells Us About the Global Economy'

    - and I will try not to be too cynical - but as I have gotten some calls from some dudes who now operate on Wall Street - and who have suggested that I should put my whole dough on betting on a sinking Euro - I would say that the Global Gambling Spirit is alive and well - AND as it seems to be quite difficult to come up with sure bets (lately) -
    Why not? -(and much less stressful than gambling with real estate?)

  23. This is not a recipe for inflation. The conservatives keep threatening that the president is bringing the inflation goblin to the US. This is evidence of the deflation goblin.

  24. There is no mention of India as usual. It seems, India doesn't figure in global map. I never understood this currency game at all.

    America is slowly recovering from the recession of 2008. India hasn't done badly either.

    In 2007, one dollar fetched 40 Indian Rupees. Now 1 dollar fetches 60 Indian Rupees. How it's possible without manipulation. How can Indian Rupee be devalued to that extent and for what purpose when Amercan dollar is stable ?. There's definitely something drastically wrong somewhere.

    In my opinion, one American dollar should fetch 40 Indian Rupees as in 2007 and not beyond this.

  25. When I lived in India, in the 70's an 80's, a dollar would only get ten rupees. As long as we are wishing the rupee to have more value, why not return to that rate? We might say, if wishes were Bentleys we could all ride in style.

  26. This is not about wishing and it doesn't pertain to 70s and 80s. It's a genuine concern pertaining to just prior to the recession and recovering stage. This is sheer manipulation.

    This must have been done due to the following games. India must have deliberately devalued the currency desperately so that its exports can stand the international competition. In such an event its imports become too expensive and exports become too cheap. It all depends upon whether exports are on the higher side or the imports. in any case, India stands to lose or

    The western powers might have compelled India to devalue its currency to a greater extent so that they can earn huge profits for the same value goods exported by them. Further, it's a gain for them in the event of imports from India even so that they can pay much less for the same value of goods. It's a win win situation for them and a lose lose situation for India in any case.

  27. Like most media stories about the markets this one is making too much out of a short term movement in the US dollar. Here is a longer term chart of the trade weighted dollar:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=MZS

    One can now see the recent move up is not all that large or all that unusual. In fact, a much larger move up occurred right in the middle of the Great Recession and during the last half of 2008 and the first half of 2009 the trade weighted dollar was higher than it is currently. Note also a move up similar to the recent one occurred between April and June 2010 only to be suddenly reversed with the dollar subsquently falling to a new low in June 2011.

    Recall that not long ago Wall Street and the most of the financial media were hyping a then recent jump in the CPI to 2.1% with some claiming that inflation had already reached the Fed's 2% target. But in response to a question at her press conference Janet Yellen described the move up in the CPI as simply "noise", which was greeted by some in the mediawith derision. Well, Yellen was spot on as can be seen here:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=MZY

    Since making her famous "noise" comment CPI has turn backed down and now sits at 1.7% while PCE inflation, which is what the Fed really considers to be true inflation anyway, sits at 1.5%, well below the Fed's target.

  28. Folks - this was bound to happen and may have little to do with "economic growth". After all, the US economy has been growing, on an annual basis, for several years now so why hasn't the dollar been rising in synch?

    The value of the dollar is directly related to its supply and demand. During the last six years, the Fed has pumped in $5 Trillion into world currency markets, all from thin air. Sixty per cent of the dollar’s circulation is outside the US. As the Fed begins to recover this cash, the supply of dollars diminishes in a relative sense - and its value will go up.

  29. Will our policymakers conclude from this that Forever War and massive military armaments make for a sound economic policy in the world?

    Plus should we conclude that running the figurative printing presses to generate over $1 trillion out of nothing (aka quantitative easing) seems to have been a good thing, too, contrary to what we normally hear about inflation of currency?

  30. Neil Irwin must be looking at his charts upside down. July 1, 2014, the Euro was trading around 1.35 to the dollar. Now it trades close to 1.26 to the dollar. The dollar has weakened vis-à-vis the Euro, approximately 8%. Mr. Irwin nailed the extent of the move, but he mistook the direction. I hope he crosses at the green and not the red.

  31. Neil has it right. One Euro will buy 1.26 dollars today. One Euro bought around 1.35 dollars on July 1st. So one Euro buys fewer dollars that it did on July 1st.

  32. Actually, Neil Irwin's right. The 1.35 is the dollar value of the euro. The value went down to the 1.20s, so the euro is worth less, and therefore the dollar has appreciated against the euro. The exchange rate chart in the article is correct.

    This NYT currency chart is a little more intuitive: http://markets.on.nytimes.com/research/markets/currencies/currencies.asp

  33. I think you are wong. The change from 1.35 to 1.26 means you can buy more euros fir the same amount of dollars. Imagine in July 1 you had 1.35 usd, and that time this would buy you 1 euro. If you have that same amount today ( the 1.35 usd) you can spend 1.26 to buy the same 1 euro you bought in july, and you will still have 9 cents. Who is crossing at red? :)

  34. Americans used QE to debase their currency, and by a normal reckoning managed to weaken the dollar 25-30% from where it should have been. For six years they used competitive devaluation to lower the value of their currency and their unemployment. The rest of the world, in particular Europe, suffered. Now that the Europeans are finally fighting fire with fire, and coming out with their own version of QE, the Americans are suddenly worried about currency wars.

  35. A welcome development. If the dollar continues its trend, we have parity with the Euro in four years. Of course, only if the Republicans never win an election, or else they will happily ruin the economy again.

  36. This is good news, because I am moving money out of the stock market at these highs and into more conservative assets (muni bonds paying a 3.5% yield, and a life insurance policy from Life Ant that pays 5% dividend payments). While both have tax advantages, there's no question that they won't turn the same profit the market has seen in the last 5 years. The good news is that with a stronger dollar, and declining market, I may look like a champion.

  37. I asked this evening, on a virtual worlds forum, which you you want, 2 lbs of chicken, 2 lbs of gold, or 2 lbs of $1,000 US currency?

    Gold was easy, but I didn't know the weight of a US bill and had to Google it - it's a gram, so 2 lbs of $1,000 notes is $908 million.

    A chicken you can eat, and it will keep you alive for a week or two. Gold and US Currency, well, neither can sustain you, but it's the value that others place, that makes it valuable. Seems currency and gold value depend on others - a shared existence.

    Someone later chimed in commenting that you could burn the $1,000 bills to keep you warm - an excellent point.

    So what is it to be, a 2 lb chicken, less than $50,000 of gold, or close to a million in US currency in $1,000 bills?

    That's why the US dollar is going up. Even with worry of the US dropping the ball in the world, it is dropping relatively less Vs. other countries.

    I'm a vegetarian, and don't eat chickens, and I like shiny things, but I like being warm and trust others, so my choice was easy.

    Was yours?

  38. Um...there is no such thing as a $1,000 bill.

  39. Wonderful news! Now I can travel to Europe again. Sounds good for travel to India as well. Finally we get a break from paying unfair prices abroad.

  40. This should really take a piece out of the hide of the debt scolds. For years the debt scolds over here have been decrying the so called "debasement" of the dollar through governmental spending to generate demand and quantitative easing by the Federal Reserve to increase the money supply. The debt scolds continue their mantra even as the evidence keeps piling that they're completely wrong. The fact that the efforts of the US to assist the economy can work without "debasing the dollar" should be evident to anyone who actually looks at the facts ... it's the US dollar that's rising in value, not the Euro. And it's the EU that's sinking back into recession.

    Where the debt scolds have really had their way has been in the EU (include the UK in this). Policies to stamp out deficit spending have their way with the EU and the EU is suffering for it ... as clearly shown in these charts. Somehow it has gotten into EU economic managers' heads that the way to raise an economy out of a recession is to reduce spending ... even when all the evidence is to the contrary. Keynes was right and is still right.

    Although the US looks significantly better than the EU, we're still not out of the woods. Furthermore, it would really help everyone if the EU finally, finally cast the debt scolds into the gutter and brought in people who actually know something about modern economics.

  41. I'm not an economist and I really can't claim that I truly understand all of the reasons that a rising dollar is good...or bad. If the dollar rises imports should be less expensive. If it falls, exports should improved for American industry. If inflation rises, interest rates should rise, my house should rise in value, but the buying power of my dollar will fall...however, my income may rise on my retirement CDs. But bonds will fall. And groceries, cars, utilities, clothing and everything else will cost more and taxes will go up as well.
    So, what does it all mean? I'm not sure. I remember when in the 1950s and into the early 1960s our dollars were backed by gold. We carried real silver and copper coins in our pockets. I could get a school lunch for 35 cents. A shirt was $3.99 or so and a pair of jeans was $4 or $5 dollars. Going out to eat was unheard of on a regular basis, but, at McDonald's we could get a hamburger for 15 cents. That was a good option for kids anyway.
    Seriously, as a retired senior living on Social Security, a pension and my personal IRAs and other savings, all this is just plain scary. My health care costs are rising. In January Highmark will raise my premium by 45% or more. My utility costs are also going up as is insurance, food, and everything else. The dollar may be rising but not much else. The exchange rate may be less advantageous but my purchasing power is also falling. And my retirement is at risk. Cheaper money? For who's benefit?

  42. Firstly the growth chart presented shows one thing - that is, no growth anywhere. The fractions of 1% could be statistical errors, miscalculations of inflation, different methodologies, etc. The US benefits from its currency being the global reserve, creating a floor for it for now by giving it a bias to the upside.

    However, if and when that status is challenged, by a bloc of nations who think they have a better idea or if the notion that the risk that the US cannot roll more than $8Trillion of debt securities, things will change, and quickly.

    The result would be more chaos in all markets, with the volatility having its effect on confidence - which is really the only thing that holds fiat currencies together at all. It is as if the anchor to the global financial system is made of paper mache.

  43. "But over most longer time horizons, the level of currencies (and bond prices, and commodities, and so on) is shaped by economic fundamentals."

    Actually, nominal exchange rates can leave relative price levels of trading partners at very unequal levels for decades at a time.

    Currency prices are less influenced by "real" variables than they are by financial market sentiment. Currencies' values are purely reputational and thus subject to swings (multiple equilibria) in financial markets, independent of real output and income.

  44. How to invest in currency markets as an American?

  45. US policy should be pro-equillibrium dollar, not pro-strong or pro-weak dollar which is a dumb and misleading debate. The dollar, and all currencies, should simply reflect economic strength of their respective economies.

    Thus, it is odd to see the blindness to foreign governments directly intervening in foreign exchange markets to drive down their currency values and increase the dollar. That direct intervention is purely or substantially for price manipulation purposes. Twenty countries in the world, including China and 19 others, do direct intervention for a trade advantage. Imagine the justifiable outcry if the Fed intervened directly in currency markets. But we tolerate foreign government manipulation of those same markets.

  46. It's more educational to look at the USD movement over the past 20 years.

  47. The U.S. Dollar seems to be the Last Reserved Currency Standing. Granted, not every nation wants to own it; but, what do you do if you have, let's say, a Trillion Dollars to sock away?

    Japan has been enduring its Lost Generation for about two decades now--and fearing Deflation. The U.K is still floundering and it certainly is much too small of an economy to allow for significant monetary activity. And, the Euro has been in a Recession for five years, and it also balances on the edge of Deflation. So, the USD appears to be the only game in town.

    http://thetruthoncommonsense.com

  48. In a just world, the right wingers who have been running around for the last five years--calling for austerity and belt tightening--and insisting that all of the Fed's efforts to stimulate that economy A) would not work and B) were only going to "debase" the dollar, would 1) admit they were wrong and 2) shut the heck up.

    Sadly, that''s not the world we live in.

    If anything, my guess is they will take this the same way they received that latest employment numbers--insisting the books are somehow being cooked or it's all just "liberal" media spin.