Today is the third class of your current four class set. We will begin class with a casual conversation. Our reading today is about senior care and our listening is about inflation. Please follow the transcript and listen to the audio.
Click HERE for the reading.
SYLVIE DOUGLIS, BYLINE: NPR.
(SOUNDBITE OF DROP ELECTRIC'S "WAKING UP TO THE FIRE")
ADRIAN MA, HOST:
Imagine the world as a big shopping mall, and every country is its own store. And if you're an American walking through this global mall, the whole place for you is basically on sale right now. According to a couple of popular indicators that track the value of the dollar against a whole bunch of other currencies, the dollar has appreciated somewhere between 8- and 13% just in the past year.
WAILIN WONG, HOST:
And actually, a lot of the increase happened in the past couple of months. If you're an American who's taken an international vacation recently, you might have noticed this. But actually, you don't even have to be abroad to benefit from the shifting exchange rate. You could be like David. David lives in Maryland, but his daughter attends college in the U.K.
DAVID DOLLAR: You know, the dollar's appreciating against just about everybody. So for us, as an American family, her expenses just went down.
MA: Is she aware of it and trying to take advantage of that difference at all? She's like, hey, you know, dad, you could give me, like, 10% more beer money now because the dollar is stronger.
DOLLAR: (Laughter) Since I'm an economist, I guess probably what I should tell her is I'm going to give you fewer dollars per month now because they're worth more, and you don't need them (laughter).
WONG: Well, apologies to David's daughter for planting that idea.
MA: (Laughter) Whoops.
WONG: This is THE INDICATOR FROM PLANET MONEY. I'm Wailin Wong.
MA: And I'm Adrian Ma. The dollar is strong right now. So today on the show - why that is and what it means for the U.S. economy. We explain with some help from an economist named David Dollar.
WONG: And yes, that is his actual name.
MA: For reals.
(SOUNDBITE OF MUSIC)
MA: When we were looking around for a guest to help explain why the dollar is getting stronger, our producer found an economist from the Brookings Institution named David Dollar. And we thought, come on.
Your last name is Dollar. Does it feel like it was just always meant to be? Like, was this your dream since you were a little kid?
DOLLAR: Right. So there's a word for this, you know - an aptronym - someone whose name is appropriate for their employment. So, like, a Baker who's a baker. So I have an aptronym. I'm an economist, focusing very much on the international economy, named Dollar.
WONG: I got to say - David Dollar is, like, in the aptronym hall of fame. It's spot on.
MA: True perfect.
WONG: It's a spot-on name for an economist. And I think David also leans into this, right? He hosts a podcast about international trade called "Dollar and Cents."
MA: Oh.
WONG: So he's a perfect person to explain why the dollar is stronger right now.
MA: Yeah. And David says a big reason for it is that, well, there's a lot of turmoil and uncertainty in the world right now. And as we have been talking about on THE INDICATOR, there is the war in Ukraine and supply chain snafus and COVID lockdowns in China.
DOLLAR: So whenever there's a big, unexpected event in the world, people tend to come into dollars - we call it a safe haven currency. And whenever some unexpected event happens, a certain amount of money moves into dollars just out of precaution.
MA: And we're talking about money being moved from big institutional investors, like banks and retirement funds. They're looking for a relatively stable place to park that money. And David says this safe haven effect is so strong that investors will flock to dollars even when the U.S. is the one causing the turmoil.
DOLLAR: You know, the global financial crisis in 2008, 2009, you know, that was a result of poor supervision in the U.S. The crisis started here. And yet one response was, a lot of money flowed into the United States because, all of a sudden, it looked like the world was really falling apart, and the one thing you can rely on is the full faith and credit of the United States government and our legal institutions, our deep capital markets. That's why we're the safe haven currency.
WONG: On top of seeking safety, though, investors, as always, are looking to make money. And that's another reason the dollar is up. So the Federal Reserve, as we've been saying, has been raising interest rates to try to cool down inflation, which makes the yields on government bonds go up, and that makes those bonds more attractive to investors.
DOLLAR: Right now, our U.S. government 10-year bond is paying 2.8%, and that's a big increase just in the last few months. And other central banks around the world, they're not necessarily doing the same thing.
MA: But in order for international investors to get that sweet, sweet U.S. government bond yield, they have to buy U.S. bonds. And to do that, they've got to get their hands on some U.S. dollars. And so that is where investors turn to the foreign exchange markets.
DOLLAR: The institutional investors - they only have to move a small amount to have a significant effect on exchange rates. And that process will create more demand for dollars in the foreign exchange market, push up the value of the dollar. That's what we're seeing now.
WONG: For example, investors have been moving out of euros and into dollars. And so even though the euro has been worth more than the dollar for about two decades, it looks like it may soon reach 1-to-1 parity with the dollar.
MA: So there you go. The dollar is ascendant. And here is the thing. You don't actually have to be a giant investor to be affected by this. Like we said, a strong dollar is good for U.S. consumers if you're taking a trip abroad. But even if you're staying home, a strong dollar means foreign imports become a little cheaper.
WONG: And cheaper goods is the opposite of inflation, which is kind of what we're all hoping for right now.
MA: Right? And so, as we say on this show, what is good for the U.S. consumer is good for all.
WONG: Is it?
(LAUGHTER)
MA: OK. Note - I - yeah. I don't know. I guess it's not really what we say. And the good reason for that is because the strong dollar can actually be bad for U.S.-based businesses.
DOLLAR: Part of this that is not emphasized so much is it will make U.S. exports to the rest of the world more expensive and less desirable. So you will get some export industries that will be kicking and screaming about this. You know, while we all agree, we need to bring down demand to control inflation, of course, what you want is someone else's demand to go down.
WONG: Right. One thing worth emphasizing here - a stronger dollar is usually not great for consumers in other countries. It means American goods and services are more expensive. So in the shopping mall of planet Earth that we talked about earlier, the made in USA store might sell whiskey and cheese and motorcycles, but now they're a little less competitive price-wise against Irish whiskey or French cheese or Chinese motorcycles. And this dynamic also goes for things you might not think about.
DOLLAR: Our universities - that's a kind of export from the U.S., and our universities depend very much on that. And all of a sudden, because of the exchange rate move, they're 10% more expensive for just about everybody in the world.
MA: And here's one other group that is also hurt by a stronger dollar - multinational corporations like Apple and Tesla or Procter & Gamble. Because they get so much of their revenue from consumers in other countries, big shifts in the exchange rates could influence where and how they do business.
DOLLAR: If you're serving the world, what you do in the United States is now going to be more expensive, and what you do in other countries is going to be less expensive in a sense. So you might shift some activities out of the United States. You know, for example, if you have multiple plants and you have a little bit of excess capacity, you might idle a plant in the United States and rely more on plants in other countries.
WONG: Obviously not good for the American workers in those plants.
MA: Yeah. And that is a really good point because, you know, in the bigger picture, when we talk about what happens when the dollar gets stronger, it does have bigger implications than just, like, what are you going to pay for a croque monsieur when you go to France for vacation? A stronger dollar can be a drag on the economies of a lot of different countries. It could mean U.S. goods get more expensive for them or their debts in U.S. dollars get harder to pay off. And that is not great, especially for emerging market economies. And then on top of that, through the push and pull of the global financial ecosystem, that can bounce back to the home of the dollar - the U.S.
(SOUNDBITE OF MUSIC)
WONG: This episode of THE INDICATOR was produced by Jess Kung with engineering from Josh Newell, fact-checking by Corey Bridges. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.