The dollar is at its strongest in 11 years, compared to other currencies around the world. The Wall Street Journal reports that investors have been buying them up as they expect the Fed to raise interest rates, and the U.S. economy to pull ahead of the rest of the world. Against other currencies, the dollar’s value grew roughly 12% over the course of 2014.
The GOP has blamed Obama up one side and down the other for the weak economic recovery, claiming that his policies are the reason that the U.S. doesn’t have good jobs and strong growth. In 2012, they claimed that Obama’s policies would “threaten inflation and lead to a weaker dollar,” according to NBC News.
Economists often appear split on whether we want a weak dollar or a strong dollar. A strong dollar means our goods cost more, which can hurt our exports and thus, our economy. In fact, in 2011, Time Magazine said that the international weakening of the dollar had helped keep our economic recovery on its legs, because we could export more.
Also, a strong dollar, compared to other currencies, makes it harder for foreign investors to buy dollars with those other currencies. So that can cause fluctuations in the dollar’s value. However, it’s easier for people with U.S. dollars to invest in other currencies and make money, which can spur certain economic sectors when done right.
A weak dollar means that foreign goods cost more, so companies that rely too heavily on imports may find themselves raising prices to cover their increased costs. This means that inflation goes up faster, which has a ton of effects all across the economic board. However, a weak dollar can also spur economic activity here, as some of these same companies might decide to invest more in domestic production to keep their costs and prices down in the world market.
UC-Berkeley economics professor Christina Romer wrote about the strength of the dollar in The New York Times in 2011. We can sum up her piece in this way: There are some situations where we want a strong dollar, and there are some situations where we want a weak dollar. It depends heavily on what our economy is doing, and what other economies are doing.
The U.S. has always seemed to take a “strong dollar” position, though. So now that the dollar is nice and strong again, and Republicans can’t blame Obama for inflation and a weak dollar anymore, what will they do? Will they give him credit? Or will they take the credit for themselves?
Or will they say that a strong dollar is bad for us, the way that Fox News speculated that falling gas prices were bad for us? The Wall Street Journal answers that question by saying robust economic growth in the U.S., which is outpacing everyone else, is a big part of it. That’s a good thing.
The Fed is expected to raise interest rates for the first time in nearly a decade later this year. That’s also spurring investment in dollars, thus raising its value. This could potentially be a bad thing, depending on what wages do this year. Higher interest rates tend to slow lending, which can slow business growth, and growth in a few other economic sectors.
They also warn that we could see our exports slow, as prices for U.S. goods rise. And they mention that shaky situations abroad, including uncertainty fueled by conflicts in Ukraine and the Middle East, threaten foreign economies, which could become a drag on our own.
No doubt that Republicans would blame Obama for all of that if it happens. They’ll say he allowed the dollar to get too strong, and that his foreign policy didn’t help. Also, since some of the economists in the Wall Street Journal’s article also agree that a strong dollar can hurt us, Republicans who are out to get Obama will look to that as evidence that he’s a failure as president.
If Obama does it, the GOP will find a way to say it’s bad. Expect them to find a way to call a strong dollar bad, after they expressed fears of his policies weakening the dollar.
Featured image by PublicDomainPictures. Licensed under Public Domain, via Pixabay
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