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U.S. dollar droops
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The value of the American dollar has dropped to an historic low – a change that is good for American exporters and European tourists, but bad for American consumers.
For the economically bewildered, this means there is less of a demand for the American dollar since the Federal Reserve cut interest rates and the August credit crisis scared foreign investors into pulling their money from the U.S. As foreign demand for the dollar decreases, its value decreases too.
Two Americans studying abroad explain the impact in shillings and cents. Bethany Kjergaard is studying in Oxford, England, where the value of the dollar has gone down 4% since the start of the year. One British pound is worth $2.05, so when Kjergaard pays £2.70 for her favorite Starbucks drink – a grande vanilla latte – she is actually paying $5.53 in American dollars. When she goes to a movie she pay £8, but she is really shelling out $16.40. Eating out costs at least £10 – more than $20.
Hannah Stone is studying in France, where one Euro is worth $1.47 and the dollar’s value has declined 10% since January. She said, “When I breathe, I lose money. Not only is everything more expensive to begin with here, but the dollar helps nothing.” In Paris, a moderately-priced restaurant is around €10 ($14.70) for an appetizer and €16 ($23.50) for a main dish. Stone said she shuns Starbucks as a symbol of the Americanization of France, but her friends pay €5-6 ($7-8) for a grande drink.
The dollar’s value has sharply declined since late summer, after Kjergaard and Stone decided to study abroad. Both said they never considered the value of the dollar when calculating the cost, but Kjergaard said the unique educational experience (and European fashion) is worth the high price. Stone said there are ways to overcome the economic woes of being American. She has made friends with a fruit seller who knows her name, saves her green bananas and sometimes throws in free oranges: “A smile can overcome many exchange rate problems.”
Photo: Hannah Stone
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One more diversion
Yeah, my wife and I went to Spain back when a Euro cost 80 cents, and life was sweet. We won’t be repeating THAT in the short term.
On the plus side, this is a boon for companies that export a lot of goods. Take Boeing, for example. Who wouldn’t like a 25% discount on a billion-dollar 787 jetliner? Woo-hoo! Take that, Airbus!
Actually, though the fall of the dollar has been good for manufacturing, it at present has caused a flight from dollar denominated securities serious enough to potentially to cause a recession, though this is unlikely
Secretary Paulsen is aware of this and taking moderate steps to protect the dollar. My sense is
that venturesome investors out there that the dollar has become so low that one could make a modest bet in favor of it, which our company is doing just now.
There is much hype about the dollar being a sign of America’s downfall, which probably means that the dollar is a good bet for the future.
The dollar needs viagra.
Can someone point me to something (article, column, website, etc) which concisely and thoroughly explains whether or not our nation’s economy is either in a recession or doomed to soon be in one? Someone I know insists we are in a recession. I assert we are not, but have enjoyed several years of economic progress and success. However, I do not know where to find a specific “list” or “chart” of economic indicators that may prove my assumption. Instead, I welcome the possibility of being educated by something proving HIS argument. I am just desirous of the opportunity to judge based upon easily digested (written for an extremely amateur economy student) material, if it is available. With appreciation….
The fall of the dollar is particularly hard on American missionaries as well. They raise support in the U.S., but as the dollar falls, they’re expenses go up much higher than expected.
winsometochrist post 4,
well It is my understanding that a recession is defined as two succesive quarters of negative GDP growth:
http://www.investorwords.com/4086/recession.html
If you accept this defintion then according to:
http://www.bsu.edu/ibb/us/qtable.htm
we do not appear to have not encountered a recession.
It would appear that growth has been slow, perhaps 2.5% or so from 3Q2006 to 3Q2007, but it appears that it has been positive.
A low valued currency can act the same way as a tarif, both can protect or offer advantages to domestic manufacturers. China has done this for years by artificially pegging the yuan lower than its actually value while the Canadian delibrately did nothing to halt the value of the dollar in the 1990s. However, given the high level of US gov’t debt, the federal reserve may have to offer bonds at a higher interest rate to attract investors, this in turn will raise the US dollar making a cheap US dollar a temporary phenomena.
For Canadians, the shopping opportunties are endless. Since most Canadians live within a “day trip” of the border, Canadian retaillers are slashing prices to keep shoppers at home. Along with super cheap US produce, the cut in prices has lowered the inflation rate to below 2% which means a substantial lowering of the interest rate is acceptable. (Given the lowest debt to GDP ration in the OECD countries, Canada can raise and lower interest rats as it suits them) So the chain of events from the decline in confidence of the US economy has led to a lower mortgage rate for me. Thank you Mr. Bush for the badly regulated US banking practises which started this chain of events and thank you to the American voter (and heavy spender) who made all this possible.
6. Musing. Thank you for the link and the information.
7. HRW: You’re welcome! It was a pleasure to vote for Mr. Bush in 2000 and for PRESIDENT Bush 2004, and I will be happy to vote similarly in 2008.
The bottom line on this is that the US standard of living gets lower. Imported goods from countries with strong currencies are more expensive. Travel to foreign countries is more expensive. Oil is more expensive (especially if the exporters choose to price it in Euros). And it would take decades before the dollar drop (and concurrent “real” cost of labor) had a significant enough effect on our manufacturing costs to allow us to compete with China and other cheap labor havens.
Of course I go back to the days when a D-mark cost 25 cents, a French frank about 14 cents…
Americans could live very well in Europe back then. Now the EU citizens can pity us and our powerless currency. Like London, NY is only going to be affordable for foreigners.
So much for the supposed wisdom of our devil-take-the-hindmost economic policies. He’s taken them and they ain’t growing the US economy.
What percentage of the American electorate actually benefit? How many will go abroad now who otherwise would not have? Will we see a big resurgence in manufacturing in what some now call the Rust Belt? I’m inclined to think good wages in the heartland industries will need more than that to make a comeback.
I had previously thought when the US economy sneezes the Chinese caught a cold. No longer accurate?
sawgunner post 10,
I suggest, as noted by what happened during the Chinese stock market correction, when the Chinese get a cold, the U.S. increasingly looks like we will get pneumonia.
They own much of our National Debt, and our currency at one level is argubly very sensitive to what the Chinese want our currency to be.
Does that mean we now need to borrow “two” trillion to build up Iraq’s army to become the type of army we thought they had when we invaded them? Just asking?