Most Americans have never traveled abroad. U.S. economic policy may guarantee that your dream trip remains deferred.
If something's got to be sacrificed to put the domestic economy on the road to a sustainable recovery, the dollar's value against other currencies seems a good candidate.
That's what the Federal Reserve signaled this week — and what Congress, in no uncertain terms, is telling the Chinese.
A new devaluation of the buck carries risks. Always high on any Wall Street list of potential calamities is the idea of a sudden collapse of the dollar. That still seems remote, though perhaps less so than in the past.
Fed policymakers seem prepared to take their chances: They strongly hinted in their post-meeting statement Tuesday that they're ready to flood the financial system with more dollars to try to push longer-term interest rates lower.
That helped drive the greenback's value to the lowest level since March against a basket of six other major currencies, including the euro and the yen.
Meanwhile, Congress made clear that it's running out of patience with China over that nation's policy of holding its currency, the yuan, artificially low against the dollar to keep Chinese export prices cheap. The U.S. House Ways and Means Committee on Friday approved a bill that could boost tariffs on China's exports to the U.S. if Beijing fails to agree to let the yuan rise in value.
Check your wallet: "What Congress is asking is for Chinese goods to be more expensive," notes Michael Woolfolk, currency strategist at Bank of New York Mellon. What was the last thing you bought that wasn't made in China?
The standard line from every administration since the 1980s is that the U.S. favors a "strong dollar." But that often has been a lie, and perhaps never more so than today.
The "almighty dollar" really hasn't lived up to that billing since 2002, when its value against major rivals reached what stands as a 25-year high.
If left to the free market, currencies rise or fall based on a host of variables, including the strength of a country's economy, its level of interest rates and its inflation rate. In general, money prefers to be where it's treated well.
The dollar's slide since 2002 in part reflects the economic ascendance of countries such as Brazil and Australia, which have benefited from a global boom in natural-resource demand, particularly from China.
At year-end 2002, one Australian dollar cost just 57 U.S. cents. Now you'll have to pony up 96 U.S. cents. So a snorkeling trip on the Great Barrier Reef has become far more expensive for Americans.
But the flip side of the dollar's decline is that U.S. goods and services have become more affordable abroad. Total U.S. exports, which had stagnated in the late 1990s, jumped from $977 billion in 2002 to a record $1.84 trillion in 2008, before the financial system crash.
With the domestic economy still weak and job growth anemic, the Obama administration sees exports as a huge opportunity. The president has set a goal of doubling exports within five years. A falling dollar obviously would help.
Although manufacturing accounts for just 11% of the U.S. economy, many of those jobs pay well. Nobody wants to lose more of them.
That's also how China feels about its own manufacturing sector. If the yuan were to surge against the dollar, Chinese exporters would either have to raise prices of their goods, accept smaller profit margins, or both.
Chinese Premier Wen Jiabao, meeting with Obama in New York this week, said his country would suffer massive factory bankruptcies and "major social upheaval" if China's government allowed the yuan to appreciate 20% to 40% as some critics have demanded.
China has insisted on revaluing the yuan at its own pace rather than subject the currency to the free market. From mid-2005 to mid-2008, the yuan strengthened to 6.83 per dollar from 8.28, a 22% gain in value. Beijing then held the yuan steady until three months ago, when it allowed the slide to resume — but glacially. The yuan now is at 6.69 per dollar, a 2% gain since mid-June.
That has infuriated U.S. manufacturing groups, which have been pressing Congress to all but threaten a trade war with China to force the government to boost the yuan.
China "will never agree to a currency adjustment until they have the proverbial gun to the head," said Scott Paul, executive director of the Alliance for American Manufacturing.
Even if the Chinese were to cave in, no one would expect a drastic overnight revaluation of the yuan. Barry Eichengreen, an economics professor at UC Berkeley and an expert on currency issues, said a 10% annual rise over a period of several years would be a reasonable hope.
Besides appeasing American industry, any acceleration in the yuan's appreciation also would serve the Federal Reserve's purposes as it faces its biggest fear: the threat of deflation, or a sustained decline in prices.