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

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

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

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

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

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

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

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

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

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