Dollar rises as economies fall

By The Daily Progress

Published: November 5, 2008

Here’s an irony for you:
As a result of the financial meltdown, which has infected the worldwide economy, the U.S. dollar has regained respect. The dollar is stronger in the international currency markets than it has been for years.

Now, you’d think, with the American economy in such a mess, that foreign investors would not want to park their money with us.
Instead, the U.S. dollar is regaining strength, analysts say, because in comparison to other markets, it appears to be a relatively stable investment.
Like a virus, the American financial crisis has now spread to other nations. Other economies are in trouble; other investors are beginning to face the crunch of falling stock prices and tight credit.
It’s a tribute to the dollar, and to the United States, that in times of financial stress worldwide, the dollar is still seen as a good investment. Part of that is due to this nation’s history of economic growth, which investors believe will return.

But part of it is simply due to a fact of timing: Here in the United States, where the virus was nurtured and then turned loose on the world, we are on the way to better health. Some analysts believe we have turned the corner and are climbing our way out of trouble.
By contrast, other countries are just now realizing how far their economies might sink. The dollar looks better to investors than their own currencies, which are losing value and haven’t yet hit bottom. So, they are moving their money into the dollar.
This may be especially true of investors who had speculated in emerging economies, where growth was brisk but risk was high. The dollar is now a safe haven from tumbling values in economies that might have been growing quickly, but are now dropping just as rapidly.
This phenomenon has a certain morale value for America.

It also means that the dollar buys more overseas for vacationers, and that the dollar can buy more imports — such as oil.
At the same time, a strong dollar makes U.S. goods relatively more expensive overseas. A rising dollar may hurt U.S. efforts to export products, just when American factories and tech companies need to be making international sales. Without those sales, U.S. companies may continue to flail, further hurting our economy.
There’s a delicate balance between having a dollar strong enough to attract investment and reduce import costs vs. one so powerful that it discourages purchase of U.S. goods.

What’s more, all of this is still in flux. Until the worldwide economy again reaches some measure of equilibrium, further changes are in store. Some of those changes will be market self-adjustments; others will come as a result of government efforts to inject stability.
The dollar’s rise is a mixed blessing. But since it is a blessing, at least on one side of the equation, we might as well take some pride in it.

And we might as well eye with irony the fact that a worldwide financial crisis that we fueled has had the unlikely result of restoring the strength of the American dollar.