Some analysts have posited that the dollar's surge to multi-year highs against a range of currencies in recent weeks represents the strongest threat to the U.S. economy. And Barry Bosworth, senior fellow at the Brookings Institution, tells
Newsmax TV they have it right.
"That's right because the biggest concern is that if the dollar stays at high value and other countries start to move away from our goods, then our exports will fall. And then we will not get the strong GDP growth that we're anticipating," he said on the network's "MidPoint" program.
"When you combine that with the fact that the rest of the world, their economies aren't very strong to begin with, so with low income, they're not going to buy very many American products, we have to worry about our ability to export to the rest of the world over the next couple of years."
The U.S. economy grew 2.4 percent last year.
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A strong dollar makes U.S. exports more expensive in foreign currencies. It also makes the revenue earned by U.S. companies overseas worth less when converted into dollars.
"An awful lot of American companies are now producing things abroad. When they bring those profits back to the United States, now it's not worth as much," Bosworth said.
Many major companies, including Hewlett Packard and Johnson & Johnson, have reported that the dollar's strength is putting a significant dent in their earnings.
A strong dollar also discourages tourists from coming to the United States, because they can't purchase as much dollars with their own currencies as they could before. "We will probably have fewer people come and visit the United States next summer because it will be too expensive," Bosworth said.
To be sure, it's not bad news for everyone. "It is good news for foreign companies that want to operate in the United States and they take their money back home," he said. "That makes it look like it's very profitable to operate here in the United States."
It's also good news for Americans traveling overseas. "You can get a lot of euros right now for American dollars. Going to Europe on vacation is very inexpensive," Bosworth said. The euro fell to an 11-year low against the dollar last month and now stands at $1.1361.
A strong dollar also makes our imports cheaper in dollar terms. "American goods imported from Asia are very inexpensive at the present time," he notes. The dollar has risen to almost a two-year high against the yuan, trading at 6.2599 yuan.
"If you're a consumer, it's basically good news. But if you're a person that works in an industry that depends on exports or on tourism, it's kind of bad news," Bosworth said.
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