Why a Strong US Dollar Stinks

I thought I would address the ups and downs of the strength of the US Dollar as the US Dollar has achieved more ups than downs recently. A strong US Dollar is generally thought to be a good thing but it depends on who has livelihood at stake. The primary reason for the increase in the value of the US Dollar is the increased demand for the dollar. Trading, on a huge scale, happens every day throughout the world. Basically, investors (I use this term loosely to describe consumers and firms) would currently rather hold US currency than other currencies because of its relative stability.

The US dollar has, for quite some time, been the defacto world currency reserve. However, recently, the explosive events happening in Europe have offset the dubious attitude surrounding the huge national budget deficits of the US as well as the Chinese takeover of US debt.

The problem lies within exporting. Quite simply, when the dollar is strong it makes exporting more expensive for US companies. Why? Foreign countries have to pay a higher amount in US dollars to import US goods. This means lower demand for US products. What is the flip side? You guessed it; cheaper foreign products for Americans and less demand in the US for more expensive domestic goods. The US is almost never the cheaper producer of goods, which hurts our GDP when the dollar is strong.

The opposite argument has its own, similarly weighted facts and conclusions, but I wanted to get the less-known argument out there. Those of you in agricultural and fossil fuel states might be interested.