Why the american dollar is so low?will get worse?

Answer 1

the USA is in the last stage of the 75 year business cycle. Demographics is turning against us-we are getting old. the youth can not pay for our debts. in other words it is like 1928 or Japan in 1990 even Spain in 1830's? A decline is in our future. What do you think the dollar will do? THe Fed has said it will support money expansion to cover the stock and housing declines-make you feel any better about $?

Answer 2

I mostly agree with b'sen.

Wikipedia:

A market based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency).

Increased demand for a currency is due to either an increased transaction demand for money, or an increased speculative demand for money. The transaction demand for money is highly correlated to the country's level of business activity, gross domestic product (GDP), and employment levels. The more people there are out of work, the less the public as a whole will spend on goods and services. Central banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions.

The speculative demand for money is much harder for a central bank to accommodate but they try to do this by adjusting interest rates. An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that currency. It has been argued that currency speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency in order to force that central bank to sell their currency to keep it stable (once this happens, the speculator can buy the currency back from the bank at a lower price, close out their position, and thereby take a profit).

In choosing what type of asset to hold, people are also concerned that the asset will retain its value in the future. Most people will not be interested in a currency if they think it will devalue. A currency will tend to lose value, relative to other currencies, if the country's level of inflation is relatively higher, if the country's level of output is expected to decline, or if a country is troubled by political uncertainty. For example, when Russian President Vladimir Putin dismissed his Government on February 24, 2004, the price of the ruble dropped. When China announced plans for its first manned space mission, synthetic futures on Chinese yuan jumped (since China's currency is officially pegged, synthetic markets have emerged that can behave as if the yuan were floating).

Answer 3

The dollar is worth less and less because the U.S. money supply has been increasing too fast. Adding to this is Americans inability to save and our 600 billion trade deficits. America's current growth is generally slower than China and most of the EU zone putting further pressure on the dollar. If China ever were to allow their currency to appreciate the dollar would only sink even further.

Answer 4

US dollar is so low because the demand for dollars by foreigners is low relative to the supply of dollars to the foreigners. Because the US is running huge trade and current account deficit, it is actually buying things from foreign countries on credit. US is spending too many dollars to buy foreign good for UD household consumption and UD military consumption abroad. But foreigners are finding US goods and services attractive enough to buy with as many dollars they are recieving by exporting to US. So the value od dollars is falling because of excess supply of dollars.
Since the outlook for the future does not show the correction of this imbalance soon foreigners are not willing to hold US $ as their reserves as much as they were willing to hold earlier. So, US dollar value may further worsen in future.
But that is good for the US as well as the foreign countries in the long term.

Answer 5

Are you serious? Its low because George Bush and his stupid war. All the money being spent on that war is driving the American dollar down the crapper.

Answer 6

Purchasing Power Parity (PPP)
A purchasing power parity exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. These special exchange rates are often used to compare the standards of living of two or more countries. The adjustments are meant to give a better picture than comparing gross domestic products (GDP) using market exchange rates. This type of adjustment to an exchange rate is controversial because of the difficulties of finding comparable baskets of goods to compare purchasing power across countries.

Market exchange rates fluctuate widely, but many believe that PPP exchange rates reflect the long run equilibrium value. The distortions caused by using market rates are accentuated because prices of non-traded goods and services are usually lower in poorer economies. For example, a U.S. dollar exchanged and spent in the People's Republic of China will buy much more than a dollar spent in the United States.

The differences between PPP and market exchange rates can be significant. For example, the World Bank's World Development Indicators 2005 estimates that one United States dollar is equivalent to approximately 1.8 Chinese yuan by purchasing power parity in 2003. [1]. However, based on nominal exchange rates, one U.S. dollar is currently equal to 7.9 yuan. This discrepancy has large implications; for instance, GDP per capita in the People's Republic of China is about US$1,800, while on a PPP basis it is about US$7,204. This is frequently used to assert that China is the world's second largest economy, but such a calculation would be valid under the PPP theory. At the other extreme, Japan's nominal GDP per capita is around US$37,600, but its PPP figure is only US$30,615.

Estimation of purchasing power parity is complicated by the fact that countries do not simply differ in a uniform price level; rather, the difference in food prices may be greater than the difference in housing prices, while also less than the difference in entertainment prices. People in different countries typically consume different baskets of goods. It is necessary to compare the cost of baskets of goods and services using a price index. This is a difficult task because purchasing patterns and even the goods available to purchase differ across countries. Thus, it is necessary to make adjustments for differences in the quality of goods and services. Additional statistical difficulties arise with multilateral comparisons when (as is usually the case) more than two countries are to be compared.

Answer 7

Federal borrowing