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Pity The Fool ?

01/31/2015

One of my favorite quotes from the Rocky movies was the line by the champ (Mr. T) that “I pity the fool,” referring to challenger Rocky Stallone.  Sometimes, economists are as arrogant as the champ.

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.”

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