This blog has discussed the problem of a strong dollar quite often.  Yesterday’s announcement that GDP growth was only 2.6% in the fourth quarter of last year is proof of the problem.  Most economists were expecting about 3% or better.

However, with the dollar strong, Americans found foreign-made products cheaper and bought more from other nations, pushing our imports up.  Conversely, with the dollar strong, other nations found American-made products more expensive, forcing our exports down.  As a result, our trade deficit widened, which causes GDP growth to decrease.

How much did the trade deficit widen, you ask?  Enough to drop GDP growth in the fourth quarter from a healthy 3.8% to only 2.6%.  In other words, our growth decreased by 32% due to the strong dollar.

Politicians like to strut and take credit for the strong dollar.  Sometimes, economists just look at politicians, roll our eyes, shake our head and . . . “pity the fool.”