Tags: Tamny | strong | dollar | currency

Forbes' Tamny: Don't Believe What You Hear, 'Stronger Dollar Is Undeniably Good'

By    |   Monday, 02 February 2015 01:10 PM

The media has been full of reports recently about the negative implications of the dollar's surge to multi-year highs against a range of currencies.

The greenback's strength creates a risk of deflation, hampers U.S. companies' exports by making them more expensive in foreign currency terms and lessens the value of U.S. companies' foreign revenue when translated into dollars, the reasoning goes.

But this reasoning has it all wrong, says John Tamny, political economy editor at Forbes.

"For money to float in value at all is for it to be robbed of its basic purpose; the individuals who comprise any economy suffering money's uncertainty in countless ways seen and unseen," he writes.

The dollar's "collapse" from 2001 to 2011 caused plenty of economic pain, Tamny says. "While the ultimate goal should once again be stability, the stronger dollar of late is undeniably good, and as history shows, great for far more U.S. businesses (big and small) than it's bad for."

Dollar devaluation deters investment in the United States, he notes, adding that "when investors invest, they're hoping to get back the dollars they invested, plus an additional dollar return."

"Even though commerce always involves the trade of products for products, money merely serving as the refereeing facilitator of exchange, the mildly deluded among us still believe that the alteration of the unit — meaning, the dollar, euro, pound, yen, ringgit etc. — will similarly alter reality," Tamny notes. "Don't like that Kraft Macaroni & Cheese takes 7 minutes to cook (actually five minutes for Blue Box 'experts' like this writer), just 'strengthen' the minute so that the process is reduced to 3 ½."

Others see it differently. "The dollar is creating tremendous systemic risk," Lawrence McDonald, head of U.S. macro strategy at Societe Generale, tells CNBC.

One problem is that the rising dollar is contributing to the plunge of oil prices to 5 ½-year lows, as oil is priced in dollars.

"As the dollar goes higher, it drives oil lower," he explains. And that hurts oil producers, of course. "Russia is now junk [in its credit rating], but it's not just Russia," McDonald notes. "If you look at the corporate debt market, and the number of companies that are tied to Russia's fate, you just have a situation where there's tremendous systemic risk that's tied to oil."

And most important, a rising dollar won't be enough to buoy economies overseas, he states. "The U.S. is no longer strong enough to hold up the globe."

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The media has been full of reports recently about the negative implications of the dollar's surge to multi-year highs against a range of currencies.
Tamny, strong, dollar, currency
Monday, 02 February 2015 01:10 PM
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