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January 14, 2009

The dollar's gain

Something unusual seems to have happened recently in the economic world. At the same time that our government has been borrowing and creating hundreds of billions of dollars, the dollar's international value has jumped. It would seem the opposite would have happened, that the dollar would have dropped in value. Why didn't it?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, because with all the economic troubles, all over the world - and indeed, we are in a worldwide recession - the U.S. dollar is still considered to be the most stable currency. It's still considered to be a safe haven. So, what you've seen happen is as investors all around the world are getting out of stock markets, they're getting out of different government bonds, they're all flocking to the dollar. They're all buying investments that are denominated in the dollar, like federal treasury securities. Indeed, the federal government has now been able to issue investments that carry zero interest rates. That is, people are so interested in having their money parked in dollars that they don't even need to be paid interest on it. That's actually unprecedented. And so it has been good for our international status actually to have this worldwide economic crisis. Now there's certainly a downside to the stronger dollar, and that is that it's reducing the growth in our exports. Our strong export growth over the last couple of years has been a very positive point in our economy. Now that export growth is slowing, that's simply going to add to the recession."

Posted by Dave at January 14, 2009 08:00 AM