Yes it feels good to vacation in Europe these days and pay for your hotel, meals and entertainment in dollars. In as little as two years, the dollar has risen in excess of twenty-five percent over the euro. So if you and the family decide to visit Paris or Madrid this spring, have yourselves a ball! You’ll get a lot more bang for your buck than you would have even as recently as October of last year.
Now for the not-so-great news: America’s customers on that side of the Atlantic, and in most other places, are buying less, and the items they do buy are costing them a heck of a lot more.
As Chico Harlan succinctly observes in a January 29 article in The Washington Post, “At no other time in the past decade has trade been such a drag on GDP [gross domestic product].”
Sure, our GDP has expanded every year since 2010 between 1.5 – 2.5%. But we’re not anywhere near where we were during the boom years of the 1990s. You want to be the big guy with the biggest currency on the block? That’s fine, but everybody else will be afraid to come out and play with you.
Also, the central banks of the world don’t view things the way our Fed does. We’re raising rates while the central banks of Europe and Japan are lowering them to jump-start their own growth.
Harlan writes Apple CEO Tim Cook has pointed out, “[T]wo-thirds of Apple’s revenue is now generated outside of the United States. And because of currency changes, every $100 that Apple had earned abroad at the end of 2014 has turned now into $85.”
Sure, we’re having a grand old time of it right now on our propped-up dollar (the traditional phrase “strong dollar” would be misleading here). But when the chickens come home to roost, and U.S. stocks begin yet another descent due to sluggish sales, the personal wealth of American consumers will inevitably feel the crunch.
How should we react to all this? We could take that trip to Europe, and spend with abandon, since this opportunity might come around only once in our lifetime. Or we can try and be thrifty, postpone that European trip, eat out less, and sock away our dollars in the bank for that proverbial rainy day.
But since a propped-up dollar will soon tumble, perhaps the smart alternative is to move some of those dollars into a tangible asset that isn’t so dependent on outside forces both here and abroad. At some point, if this country’s customers overseas keep rejecting our goods because they’re too expensive, the dollar will tank big time. When that happens, U.S. investors who had the foresight to invest in gold will be stocked up on the most effective currency shock absorber the world has ever known. That goes double for those who put that golden shock absorber in their IRAs.