A valuable lesson

Question: How weak is the dollar right now?

Answer: In terms of historical lows, the dollar was very low under Jimmy Carter, and it was very high under Ronald Reagan. So I doubt it’s at an all-time low, but it is lower than it has been in several years.

Q: Why has the dollar lost so much strength internationally?

A: There are basically two reasons that foreigners buy dollars. One is to buy our goods and services. And the other one is to buy our financial investments – stocks and bonds. Right now, our stock market doesn’t look like something foreigners want to invest in. They’re not buying a lot of dollars, so the dollar is weak, and the dollar has been weakening for this reason for three or four years. It’s come down quite a bit since 2002. Also, when the U.S. has to buy currency overseas, that weakens the dollar because we’re throwing more dollars into those currency markets – there’s greater supply of dollars.

Q: Is the currency market volatile like, say, the stock markets?

A: The foreign currency market is the biggest market in the world, and there’s about $1 trillion of trade a day in that market. And most of the transactions that happen aren’t just voluntary. So here’s this $1 trillion market, and probably $900 billion of that is necessary, and so the part that’s optional – speculative – is fairly small. So, I wouldn’t think it’s a volatile market.