BOSTON — General Motors Corp. blames it for giving foreign carmakers a big boost. Seattle resident Esther Lundman praises it for slashing the cost of clothing for her kids. And American mutual-fund investors can thank it for checking inflation and fueling the stock market's upward blaze.
The mighty buck is back.
While the US dollar has trended downward since 1985, it has rebounded impressively since early 1995 - up more than 40 percent against the yen and 20 percent against the German mark.
The shift has big implications globally, not just for American workers, consumers, and investors. Stereo systems from Tokyo and airplanes from Toulouse are more competitive in dollar-linked markets.
But with the US trade deficit at a nine-year peak, is the dollar going too far?
Treasury Secretary Robert Rubin hinted to reporters Feb. 7 that King Dollar had risen enough.
"The dollar's correction process ought to end about now," Hans Tietmeyer, president of Germany's central bank, added the next day.
"I hope the depreciation of yen will not go further," says Takeshi Kagami, consul general of Japan's Detroit Consulate.
So far, such talk by finance officials has had little impact.
"I don't think they can stop it," says Kathryn Stevens, an economist at Dean Witter in New York. The Treasury, in fact, has not intervened in currency markets by buying or selling dollars since August 1995.
Ms. Stevens predicts the greenback will rise another 5 to 7 percent against the yen and mark this year.
She cites several reasons:
* Foreign investors have confidence in US financial markets, and are lured by higher short-term interest rates (about 5 percent) than in Germany (3 percent) and Japan (0.5 percent).
* Foreign companies pumped nearly $100 billion into plants and equipment in the US last year, and these investments will continue.
* The US has a stronger budget position than Japan or European nations.
* Confidence in Japan has faded with a lingering banking crisis and weak economy.
Lower prices in US
Whatever the causes, the strong buck is a boost for American consumers.
A few days ago Ms. Lundman of Seattle bought a spring jacket for her four year-old son, Mark.
"Over a year ago it cost around $30. Now the store had it selling for about $20, and I picked it up on a sale for $8," she says. A pair of jeans for Mark cost $10. A little over a year ago, the same jeans cost around $15. A dress for eight-year-old April that cost $40 a year ago now sells for about $20. Flipping to the labels, Lundman finds the items are from Asia.
"When the value of the dollar rises, imports become cheaper," says Cynthia Latta, an economist at DRI/McGraw-Hill, a forecasting firm in Lexington, Mass.
Falling prices for imports, in turn, put pressure on manufacturers based in the United States. That competition keeps the overall inflation rate down.
"The high dollar and inexpensive imports have been doing a lot of Alan Greenspan's work," laughs Ms. Latta, referring to the Federal Reserve chairman's efforts to control inflation.
A weak dollar, by contrast, might help ease the US trade deficit (see story at right). But economists cite evidence that devaluation fuels inflation, as import prices go up.
"It's the height of unsound policy to devalue yourself into competitiveness," Mr. Rubin said in August 1995.
The high-dollar yarn has a downside, however.
A New York retiree discovered that the earnings on his IBM stock would have been 62 cents a share (or 6 percent) higher for 1996 had the dollar been at 1995 levels. "Over 60 percent of our revenues now come from overseas," says an IBM spokesman.
It's not just big multinational corporations that are hurt.
"Imagine what it means for the little guys [small exporters]," says Jonathan Basile, an economist at HSBC Markets Inc., New York.
And in an increasingly global economy, even domestic sales in major industries like autos are affected by the dollar.
Detroit's Big Three carmakers have pressed Rubin to stop the dollar's ascent. GM saw its US sales drop 1 percent in January, as Toyota enjoyed a 55 percent jump and Honda 21 percent.
Still, many manufacturers have insulated themselves somewhat from currency swings through global production and foreign exchange strategies. And the dollar now is far weaker than in 1985.
Measured against a basket of major currencies, the dollar is roughly where it was in 1992, when President Clinton took office, and 1980, the end of the Carter administration.
Is there a "right" value for the dollar? In theory, a currency should reach what economists call "purchasing power parity." Your dollar, translated into another currency, should buy the same number of candies, or whatever, abroad as at home.
But reality can and does stray far from this theory, as budget deficits, foreign investors, and speculators affect exchange rates.
Lawrence Kudlow, chief economist at American Skandia Life Assurance Corp., Shelton, Conn., says Rubin was "right" to try to put the brakes on the dollar's rise. He says it was necessary to "curb speculation" on the foreign exchange markets.
* Staff writer Guy Halverson contributed to this story.