Tags: Mason | dollar | US | economic

Economist Mason: Dollar's Rise Actually a Good Thing

By    |   Thursday, 12 March 2015 07:20 AM

The dollar has soared to multi-year highs against a range of currencies in recent weeks, and critics are complaining that the move is hammering U.S. corporate earnings and abetting deflationary forces in our economy.
 
But hold on a minute, says former Federal Reserve economist John Mason.
 
"Fed Chair Janet Yellen should support a higher value for the dollar because, contrary to popular belief, it's in the best interest of the United States to have a stronger currency," he writes on TheStreet.com.
 
The greenback hit a 12-year high against the euro Wednesday and a seven-year high against the yen Tuesday.
 
"Policies that weaken the dollar, like those the United States has followed since the early 1960s, may help the economy, and the labor markets in the short-run," Mason says.
 
"But over the longer-run, more research is indicating that these policies can be harmful to economic productivity and consequently economic growth, because the economy becomes less competitive."
 
The dollar's ascent simply reflects the U.S. economy's strength compared to economies overseas, Mason explains.
 
But the greenback's strength isn't so helpful for stocks, says Russ Koesterich, chief global investment strategist for BlackRock.
 
"You've got the Dollar Index up about 23 percent from the summer lows, and people are realizing this is starting to bite into earnings" he tells CNBC.
 
A host of companies, ranging from IBM to Johnson & Johnson have reported a negative impact on their profits from the dollar's ascent.
 
A strong dollar curbs U.S. companies' exports by making them more expensive in foreign currency terms. And it lessens the value of their overseas earnings, which are worth less when converted into dollars.
 
Given the lofty levels of price-earnings ratios, stocks will have a tough time posting gains from here without earnings growth, Koesterich notes.
 
Koesterich thinks the dollar is due for a correction at some point this year, but that the bullish long-term trend remains in place.

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The dollar has soared to multi-year highs against a range of currencies in recent weeks, and critics are complaining that the move is hammering U.S. corporate earnings and abetting deflationary forces in our economy.
Mason, dollar, US, economic
318
2015-20-12
Thursday, 12 March 2015 07:20 AM
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