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U.S.
Dollar Hurting Tourists And Global Businesses |
Posted:
12.06.04
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The dollar, once one of the world's strongest currencies, has
fallen dramatically in recent months, making travel more expensive
and increasing the possibility that prices could go up at your
local Target and Wal-Mart.
Printer-friendly version: PDF
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So, you've graduated from high school and you're traveling across
Europe for your last summer of freedom before college. During
a sunny day in London, you and a friend sit down for a slice of
pizza and a drink.
When the bill comes you realize you have no money and dash across
the street to the currency exchange booth. You ask the clerk to
change a $20 bill but when she returns your cash, you're left
with only £10.32 -- not even enough to cover lunch.
 This
scenario and many like it are playing out in shops and restaurants
across Europe as the value of the U.S. dollar drops to historic
lows against the European euro, the British pound and the Japanese
yen. Travelers who once paid 82 cents for each euro must now pay
$1.34.
"If you take your dollar to a bank and ask for say euro
or yen, you get less than you would have otherwise," said
Kenneth Rogoff, a professor of economics at Harvard University.
"It also means that if somebody from Paris or Berlin comes
to New York, they think everything is pleasantly cheap. But if
one of us goes over there, it suddenly looks really expensive."
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What is driving
the dollar's decline? |
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According to analysts, the decline in the U.S. dollar is due
to two deficits -- one between the amount of goods Americans buy
from other countries and the amount other countries buy from us,
and one between how much money the government collects in taxes
and how much it spends on roads, military, social programs and
other expenses.
Currently, the federal deficit, the amount the government borrows
to cover its spending, is $413 billion. This means the federal
government is $413 billion in debt.
 The
U.S. finances its debt by selling bonds, and because mostly foreign
countries buy those bonds, much of the money is borrowed from
countries like China and Japan.
As the deficit continues to grow and the United States falls
further into debt, these countries have begun to worry that when
the time comes, the United States might not be able to pay the
returns on its investment. Because of this, several countries
have begun to place less value in the dollar.
"[T]he United States has been borrowing and borrowing and
borrowing," Rogoff, said. "[T]he United States is allowed
to put the rope around its neck several times, but it's coming
to an end. And that's why the dollar is starting to go down, because
everybody is sort of seeing it coming to an end."
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Trade |
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According to Irwin Stelzer, director of economic policy studies
at the Hudson Institute in Washington, D.C., American trade policy
is another reason for the decline in the dollar's value.
"It's happening primarily because we are buying more stuff
from the rest of the world than the rest of the world is buying
from us. As long as that goes on, we're shipping over to other
countries pictures of American presidents on little bits of paper
and they're sending us automobiles and T-shirts."
"At some point, they don't want any more of our pictures
of American presidents," Stelzer said.
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The impact
of a weak dollar |
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The impact of a weak dollar is felt on a national and global
level.
A declining dollar spells trouble for countries that export goods
to the United States. Those countries, like Mexico and Honduras,
who once got top dollar for their goods, now are being paid in
U.S. dollars that aren't worth as much.
On the other hand, according to Stelzer, American goods seem
cheap to other countries, which could increase demand and help
U.S. manufacturers.
 At
home, the impact of a weak dollar overseas could mean an increase
in prices at the store since products from countries like China
now cost more to bring in.
Americans won't feel the pinch this holiday season, Rogoff says,
because "importers bought things a while ago, it takes time.
But next Christmas, they'll feel it."
"We'll feel a little poorer," Rogoff said. "Prices
will go up at Wal-Mart, prices will go up elsewhere. We're used
to seeing prices go down; we'll see a period where [for] a lot
of things we buy, the prices go up."
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Changing
travel plans |
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In addition, many Americans won't be able to afford European
vacations.
Twenty-year-old Joanna Qualls, who recently visited London on
her first trip to Europe, said she would not be going back any
time soon.
 "It
was too expensive," Qualls said. "If you gave them $180,
they gave you 89 pounds and change. I was out of money in like
three days."
Qualls said everything from food to hotels to clothes to traveling
on the British subway system, or tube, is expensive.
"I wanted to [shop] but I knew I couldn't because of the
money. I didn't have enough. I did a lot of window shopping."
--
Compiled by Kristina Nwazota for NewsHour Extra
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American schools and financial aid should be only for legal citizens of the United States. There should be no exceptions to this.
