Dan Rather ........ ............... ......
You are not planning a trip to Paris anytime in the near future, and you're not conducting arbitrage on the world's financial markets. You're not stocking a wine cellar, or purchasing haute couture fresh off the runways in Milan. You are not a member of any so-called jet set, nor do you aspire to be. So should you even care that the value of the U.S. dollar is falling fast against that of other currencies?
The short answer is: You should. The longer answer is that you should, because economics -- like weather -- take place in an environment of interdependent variables. The beating of a butterfly's wings in one part of the world can lead, way down the line, to a hurricane in another.
From the point of view of U.S. companies that export their goods, a weak dollar can be welcome news. If you are exporting beef or automobiles or computers to Europe and Asia, your sales have a chance to go up if consumers in those places need to spend fewer euros or yen to buy your stuff. And given Federal Reserve Chairman Alan Greenspan's recent warning that the huge U.S. trade deficit "cannot continue to increase forever," this would seem to be a good thing for the American economy.
In some ways, it is. If American companies are increasing their sales through stronger exports, they can theoretically hire more people and spend money on improvements and expansion, leading in turn to economic growth.
But there is also this: In recent years, the U.S. economy has become ever more dependent on consumer spending -- to the point where now it comprises roughly two-thirds of our economic activity. A considerable part of that consumer spending rests on the availability of goods priced within consumers' reach. In consumer electronics, especially, recent history has seen prices fall dramatically. Think, for example, of the $80-and-less DVD player.
The era of the cheap DVD players, however, might be coming to an end, at least for the time being. That also goes for so many of the things we buy in this country, from cars to clothes to beer, that are now made abroad. The rising costs of imports have the potential to affect just about every consumer in the pocketbook, and they also have a chance to impact the economy as a whole, if those same consumers decide they can't afford that new coat or television or video-game system for their kids.
A lot of what is happening to the dollar right now has to do with soaring U.S. budget deficits -- shortfalls that make the dollar less attractive to foreign investors, which in turn causes interest rates to rise. When interest rates go up, stock prices tend to go down, which can lead indirectly to further declines in the dollar. U.S. deficits seem likely to be a fact of life for some time, and there is a growing view abroad that the Bush administration -- despite its rhetoric -- favors a weak dollar. All of this has led to concern in world markets that, if the dollar falls much further, global economic instability could be the result -- a result that wouldn't do anyone much good.
Complicated? Yes -- in causes and effects. But it would be a mistake to think that foreign exchange rates don't affect everyday Americans, for potential good and potential ill. The global economy means that our fortunes are all a little more interdependent than they used to be. You no longer have to travel to Europe or buy luxury goods from abroad to feel the cost of foreign money.
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