Dollar doldrums: for much of the world, America is on sale--and foreigners are snapping up bargains. But what does the "weak dollar" really mean, and how does its "fall" affect us?

• Author: Smith, Patricia
• Position: ECONOMICS

In the 2002 episode of The Simpsons in which the family heads to Toronto, Homer wins over an obstinate Canadian security guard by waving a single American dollar bill in his face. Fast forward six years. In his latest video, rapper Jay-Z cruises the streets of New York flashing not the traditional stack of $100 bills, but a fistful of euros.

These days, the dollar just isn't getting the respect it used to. And more important than any loss of prestige in the world of pop culture, a falling dollar has real-world consequences for all of us.

"The fall of the dollar has both benefits and risks," says Nouriel Roubini, a New York University economics professor.

[ILLUSTRATION OMITTED]

But what exactly makes the dollar weaken? And what would make it start to rise in value?

In a nutshell, a weak dollar means that it buys less of other currencies--British pounds, euros (the currency in 15 other European countries), Japanese yen, Mexican pesos, or Canadian dollars--than it used to.

Today, it costs almost $1.50 to buy one euro, compared with 86 cents in 2002. That means that a 200-euro hotel room in Paris that would have cost an American about $170 six years ago, now costs about $300 a night--which helps explain why you don't see too many American tourists on the streets of Paris or Rome these days.

Conversely, a Frenchman visiting the U.S. feels like he's getting a real bargain because his euros are buying a lot more dollars. A $250 hotel room at Disney World in Orlando that would have cost him 290 euros six years ago is now 170 euros--and that helps explain why the streets of New York and Los Angeles were packed at Christmas with Europeans and Latin Americans buying all the American Apparel shirts and Timberland boots they could get their hands on.

[ILLUSTRATION OMITTED]

"Your money just keeps on going," says Margaret Dragonette, who came to New York from Britain in December. She was awed at the buying power of her British pounds, each worth $2.03 at the time.

JEEPS & JETS

But the effects of a weak dollar--good and bad--go way beyond where folks go on their vacations.

On the plus side, anything grown or made in the U.S.--from wheat and corn to Jeeps and Boeing jets--is a lot cheaper for foreigners to buy, so exports are soaring, with the farms and

factories of the Midwest benefiting in particular. Illinois-based Caterpillar, which makes tractors, construction equipment, and other machinery, has seen its sales in Africa, Asia, Europe, the Middle East...