(MarketWatch) -- Talk about your party poopers -- just as we are preparing to celebrate the 231st anniversary of our declaration of independence from England, the dollar has sunk to a 26-year low against the British pound.
Not since 1981 has sterling been worth as much as $2.02 in the foreign exchange markets.
At first blush, this appears to put a damper on our July 4th celebrations. After all, a strong dollar is like motherhood and apple pie, right?
Sometimes it is and sometimes it isn't.
A strong dollar makes foreign goods cheaper, which helps to keep inflation and interest rates down. It also gives tourists from this country more buying power when they travel overseas.
However, like many things in economics and finance, a strong dollar has its downside.
Cheaper foreign imports usually lead to a bigger trade deficit, thus subtracting from economic growth. This also reduces jobs, many of which are relatively high paying, while cutting into profits that U.S. firms make from their operations abroad.
But we're talking about a lower dollar, today, and, as you might have guessed, a weaker dollar produces results that are quite the opposite of those conferred by a strong currency.
For example, a lower-valued dollar will slow the inflow of goods made overseas, since they will be more expensive. At the same time, this will boost sales of products made here in the U.S.A., since they will be cheaper to foreigners.
A lower dollar will give earnings a lift -- not just for exporters, but for any U.S. company with operations based overseas. This is because stronger currencies overseas translate into more dollars stateside.
As fewer foreign goods come in while more local products flow out, our trade gap will shrink, leading to more economic growth -- not to mention more jobs. A smaller trade gap also means we can become less dependent on others to satisfy our financial needs.
This boost to profits will come just in time, since many firms are having trouble matching gains in earnings recorded last year and the year before. This could be why the stock market has been celebrating for much of this year, bringing the Dow Jones Industrial Average a mere chip shot away from last month's all-time high.
The stronger pound should encourage some Brits to hop across the pond and visit their former colonies, since everything here is so much cheaper for holders of sterling. By the same token, fewer U.S. citizens are likely to take flight when the cost of traveling abroad is so dear.
And while they're here, these visitors from abroad will not only buy loads of goodies to take back with them -- some might even buy something that has to remain here.
I'm talking about real estate, my friends, whose value in hot locales like Manhattan is soaring at a time when prices elsewhere are tanking.
If this is not reason to celebrate -- I don't know what is.
Dr. Irwin Kellner is chief economist for MarketWatch. He also is the Weller professor of economics at Hofstra University and chief economist for North Fork Bank. Copyright ©2007 MarketWatch, Inc. User agreement applies.
Commentary Added by Branon Edwards:South Florida has a traditionally strong foreign influence. Europeans have been flocking to Miami and Fort Lauderdale for years now to purchase real estate. This has been especially true since the British Pound and the Euro have remained strong. South Americans have done the same as their currencies have increased as well. The international nature of our economy has protected South Florida from a number of economic issues over the years.
In short, South Florida continues to be exceptionally attractive for international investors. While our real estate market has certainly slowed from the hay-days of 2004-2005, there are still a substantial number of properties changing hands here every day in the land of Sunshine. Couple the international investors with the baby boomers who are trying to escape the winter cold, and Florida is still one of the more attractive places to buy real estate in the United States.
With the present Buyers' Market we are experiencing, savvy buyers are finding exceptional bargains. Real estate hasn't stopped, it has simply changed.
