 Posted: Mon, Sep 24 2007, 9:50 am EDT Post subject: How the Falling Dollar Affects Americans |
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How the falling dollar affects Americans US consumers' standard of living may drop as they pay more for foreign goods, but demand for American labor will rise, say economists. By Ron Scherer | Staff writer of The Christian Science Monitor from the September 24, 2007 edition New York The saga of the sagging dollar continues. All year, the dollar has drooped compared with other major currencies. Last week, after the Federal Reserve reduced interest rates, it fell even further – now at a level not seen since 1997. The Canadian loonie is even stronger – on par with the greenback for the first time in 30 years. But does a less prestigious portrait of George Washington (on the dollar bill) have any meaning for most Americans? Economists say the falling dollar has pluses and minuses for the economy. For consumers who like to buy European automobiles or French cheeses, it means their standard of living will go down as they pay more money for these goods. But for American workers on the assembly lines at places such as Boeing or Caterpillar, it means their employers' products will be more in demand. "After the pluses and minuses are all netted out, I think the lower-valued dollar is good for the economy," says Mark Zandi, chief economist at Moody's Economy.com. "The growth we're getting from trade is helping to cushion the blow to the economy from housing." The last time that the buying power of the US dollar was this low was about a decade ago, according to Federal Reserve Board statistics. But the major difference was that the dollar was rebounding from its low point in the mid-1980s when the major industrial nations decided it was overvalued. It was also easier to make changes in the trade numbers because the price of oil ranged from $22 a barrel (in 2006 dollars) to $26 a barrel, and China's exports were tiny. The US trade deficit was about $230 billion. This time, the dollar has been on the skids for the past five years. The price of oil is about $80 a barrel. The Census bureau reports the trade imbalance with China alone is $141 billion through July. So far this year, the greenback is down 7.6 percent, including another 2 percent last week after the Fed reduced interest rates by half of a percentage point. One of the greatest concerns is that a lower-valued dollar will add to the inflation rate, since imports could become more expensive. So far that hasn't shown up in the inflation numbers. "It will take awhile to build into the system," says Bill Witherell, chief global economist at Cumberland Advisors in Vineland, N.J. "Right now, it's [inflation from imports] within the bounds which permitted the Fed to move." ... http://www.csmonitor.com/2007/0924/p01s05-usec.htm |
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