“Don’t Sweat the Dollar”

1. “Don’t Sweat the Dollar” Presented by Amy Klein Fortune Magazine, August 12, 2002 Written by Rob Norton

2. Investor Worries • Terrorist threats • Looming warfare • Corporate scandals • Recent decline of the dollar against foreign currencies

3. It’s Too Soon to Worry • Dollar not low by historical standards • Long-term time horizon • Rates still well above the ‘90s • Exchange remains competitive with foreign currencies

4. Recent Exchange Rates Euro • Launched Jan. 1, 1999, at $1.17 • 1½ yrs lost 25% against the dollar • 2000 only $.83; now $1.00 Japanese Yen • Dollar is slightly above 10-year average

5. Dollar Previously Overvalued • Continued climb through 2001 economy slump • Forecasted months ago to fall 20% • Argument: $ can sink another 10% without being undervalued

6. Why Are Investors Afraid? • Decreasing purchasing power • Increasing import prices fueling inflation • Depressed value of foreign investment • Compromise to U.S. economic recovery

7. Why Shouldn’t They Fear? • Import prices have barely budged • Dollar must fall considerably before inflation increases • 25% decline to threaten foreign investment and recovery

8. Advantages of a Lower Exchange Rate • Competitive U.S. goods – benefits smokestack America • Lower dollar value beneficial for manufacturers • A strong dollar detrimental to U.S. exports • Falling dollar helping manufacturers to recover

9. Solutions to the “Problem” • Treasury can buy dollars and sell foreign currencies Problem: effects only momentary • Federal Reserve can increase interest rates Problem: impair overall economic recovery

10. What Should We Do? • Hold out for economic recovery • Current slump only temporary • Is innovation, productivity, economic growth higher anywhere else?