Since when is getting 70 euro cents or 61 British pence or 94.35 yen for a dollar a sign of the greenback's strength? I remember when the dollar bought 1.20 euros back in 2000. But it's all relative. These days, getting an average of 73 euro cents in exchange for U.S. currency in the second quarter is apparently hurting the repatriated global earnings of multinational companies like McDonald's ( MCD). That's one of the excuses the burger chain used to explain its 8% drop in second-quarter profit today. We heard the same thing from Coca-Cola ( KO), Citigroup ( C), Philip Morris International ( PM), Pfizer ( PFE) and others. To be fair, the dollar bought 71 euro cents on average in the second-quarter of 2008, so there has been a year-over-year loss of 2 euro cents -- and that does add up when you're talking about billions of dollars in revenue. The exchange rate also eroded the amount of British pounds and Japanese yen this year compared with last year. But don't be deluded into thinking everyone shares this corporate view about the strength of the dollar. If you listen closely, you'll hear contradictory opinions. With the U.S. deficit topping $1 trillion and much of that debt held in China and other foreign nations, the rest of the world is more than a little concerned about the dollar's weakness.
Treasury Secretary Tim Geithner, the official PR representative of the U.S. currency, has felt compelled to reassure the world that the U.S. government is committed to a strong dollar (such lip service is a job requirement of every recent Treasury Secretary). While important to say for political reasons, the truth is that U.S. money ain't worth much these days in relative terms. And the other unspoken truth is that a weaker dollar is better for the U.S. economy because it makes our goods cheaper abroad and it makes foreign goods more expensive for Americans to buy. We want to have it both ways. We need the dollar to be just strong enough to remain a global reserve currency so that other nations will continue to finance our deficit by buying bonds from the U.S. Treasury. But we don't want the dollar to get so strong that exchange rates siphon off taxable earnings from companies like McDonald's. That's the real truth about dollar policy.