The dollar is getting pricey. This is what that may do to your pocketbook — or your job

A New York Times headline, “The Dollar Is Strong. That Is Good for the U.S. but Bad for the World,” was a kick in the gut to economics teachers.

Teach college econ for 35 years and you feel like Sisyphus, the mythic Greek who was condemned to push a rock up a mountain only to see it roll to the bottom every time.

And this mistaken nonsense comes at a particularly bad time.

Econ profs know and teach that currency exchange rates are prices. Whether a higher price is good or bad depends on if you are buying or selling. You never see The New York Times declaring, “High toilet paper prices are good for the United States.”

Forget the notions of “strong” and “weak” where it applies to currency. A high-priced dollar relative to other currencies is good for U.S. consumers. Imports such as European and Asian cars, electronics, steel, wine, cheese, ham, etc. are cheaper.

And this pressures competing U.S. producers to not raise prices. It helps curb inflation. Low-priced British pounds and EU euros make vacations in Europe cheap. Great for our consumers, and maybe “bad for the world.” But also bad for U.S. miners, farmers, and domestic manufacturing and med-tech workers.

This is an old lesson, just one journalists who never studied econ refuse to learn.

So why is this a particularly bad time for such bad economic reporting?

It’s because the entire world is in an economic crisis, the most complex and perhaps the most dangerous in 90 years. We are in a sort of octuple witching hour.

Our nation is one of many coming out of fiscal binges meant (back then) to keep COVID-19 from bringing economic activity to a halt. But now, these very policies threaten to do just that. Our response to COVID included doubling down on the money-supply growth started after the 2007-09 financial-market meltdown. Now we face the resulting inflation.

China’s complete shutdowns of large cities to control COVID is shaking its economy, along with huge overhangs of bad debt from vacant apartment projects and riderless trains. So it is scrambling to raise the price of the yuan instead of suppressing it as often has been the case.

Then there is the war in Ukraine that affects exports of natural gas, petroleum, grains, oilseeds and fertilizers with knock-on effects on Europe’s industrial output and the safety and comfort of its citizens going into winter. And consider the U.K. and Turkey dashing madly into idiotic economic policies plus political turmoil-ridden elections here and in Brazil. Then add one of Latin America’s cyclical epidemics of financial crises.

The mix ain’t pretty, folks. So just when we need to understand basic econ relationships, we are fed confusion.

The dollar is getting pricey because the Federal Reserve is raising interest rates to limit inflation. Why? Because too much growth of the amount of money sloshing around the economy causes prices to rise. You reduce inflation by reducing excess money, but with less money available to lend, interest rates rise. What the Fed is doing is crimping down on the money supply. Higher interest rates are just an indicator of this.

Higher U.S. interest rates tell countries around the world it is better to invest money here to get the high return. But to do that, those countries need to trade their local currencies into U.S. dollars. That makes the dollar expensive and the euro, pound, yuan, yen, etc. cheap. That affects the relative prices of imports and exports. And that affects consumers and producers.

Cheap pounds hurt British consumers but help their wheat and canola farmers. A cheap euro hurts feed-buying Dutch and Danish livestock farmers but makes their cheese and ham a deal to U.S. residents. And cheap euros are great for French and Italian wineries.

This has a ripple effect: More competition from imports means that growth in U.S. jobs will be weaker.

Economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.