US Currency Devaluation?

Question

I have been following closely the US currency and as everyone can see, the US currency has fallen against most major currency including the Euro, Yen, Renminbi and even the Canadian dollar.

Until last week, I have also noticed that the US Dollar has fallen over 25 cents to the Mexican Peso. Is there any reason why?. I have some cash stored in Peso that I need to convert to US dollar but does anyone know how low the dollar will fall to the Peso. It was trading at US1=MXN11.1 until last week when it fell to US1=MXN10.78

Any currency broker and specialist in here?. Thank you.

4XTrader, are you saying it would be better for me to diverse some of my funds into another currency?. I have really been thinking about this. I think the US Dollar is going to fall even more and I have accounts in several other countries. But the Euro is already too high. I could convert some of my money in RMB.

Answer 1

The second poster seems to be pushing a service & didn't answer your question. The first poster is naive at best. All things being equal, yes, a weaker currency will help the export market. But answer this - what does the U.S. export anymore? Other than weapons, the U.S. manufacturing base has disappeared. If chocolohoma were paying attention, he'd see that his premise is doesn't apply to the current situation. Yes, a weaker dollar would help the U.S. export market under normal circumstances, but these circumstances are far from normal.

Ask chocolohoma this - if a weaker dollar will help the U.S. export market, then why is the U.S. still running huge, record trade deficits even with the dollar having fallen 31% in the last 5-6 years? In 2001, the US Dollar Index was at 120, today, it's just below 82. Over a 30% devaluation and the U.S. is still running trade deficits of nearly $1 trillion yearly.

And nothing to be overly concerned about? Obviously, chocolohoma is living in the Hollywood induced fantasy land of celebrity worship and that "all is well in the world". Right now, the US Dollar Index (USDX) is sitting just above critical support (as of this writing the USDX is trading at 81.98 - critical support is 80). A break below 80 could trigger a full dollar panic/crisis/collapse. If they think a dollar collapse is nothing to be too overly concerned about - they're out of their mind. The lowest the dollar has ever been was 77.83 (I believe, but don't quote me on that). Anything below that level and we are in uncharted territory.

Nothing to be too overly concerned about? Right now, China and Japan alone hold almost $2 trillion in U.S. dollar reserves and treasuries. Every penny the dollar drops in value, they're losing $20 billion. Now remember, that's only China and Japan. Critical support is at 80 on the USDX, a fall below that level will most likely trigger panic and wholesale dumping of the dollar as foreigners holding dollars and dollar denominated assets rush for the exit door. Imagine if you will what would happen if $2 trillion left U.S. markets - the stock market, bond market and such. And that's only foreigners holding dollar denominated assets. There is another market that would be adversely affected by a dollar collapse and that's the yen carry trade. When Japan's interest rates were at zero, people borrowed yen (basically for free) and then invested them in assets in other countries were interest rates were higher, such as U.S. treasuries paying 4.5%. In order for the yen carry trade to be profitable, 2 things must exist: 1) the interest rate differential must remain fairly wide (with Japan's rate at 0.5%, there's still a lot of wiggle room) and, 2) the yen must remain weak against the dollar. In a dollar collapse, the yen will very quickly strengthen again the dollar and anyone with open yen carry trade position with find themselves quickly losing money. This would trigger panic selling of assets as investors unwind their positions to pay back the yen loans. The yen carry trade is several trillion dollars.

As trillions of dollars leave U.S. asset markets, those markets will collapse. Add to that as foreigners dump dollars, all those dollars will flood back onto U.S. shores driving inflation through the roof. If you think $3/gal. gas is bad, that is going to be cheap during a dollar rout induced inflationary spike. The only reason the U.S. hasn't experienced hyperinflation yet is that all the dollars we're printing are being sent overseas.

The dollar is falling because the Fed is printing money like crazy. In March 2006, the Fed stopped publishing M3 money supply figures. M3 contains the figures from the Repurchase Agreement market (Repo market). The Repo market is how the Fed add/removes liquidity from the excess banking reserves. According to shadowstats.com (they reconstructed M3 using existing data to figure out what M3 is doing), the fed is inflating the money supply at a rate of 11% per year. That's a lot of liquidity. Remember, price inflation is a direct function of monetary infaltion, ie, printing money.

Now, if you want to know how bad printing money can drive inflation, do a websearch for "Post WW1 Weimar Republic Germany Hyperinflation". To give you a clue, a sandwich cost 550,000 marks - that's how bad it got.

The U.S. is so in debt, it's not funny. The $9 trillion national debt you hear about - that's only CURRENT FEDERAL debt. The total federal debt, when you take into consideration, current debt, long term debt, unfunded liabilities, etc., is in excess of $55 trillion. If you take all gov't debt (federal, state, local), corporate and private debt in the U.S., the figure is around $100 trillion. Read that again -- $100 TRILLION. How are we ever going to pay that back? We can't. When a government can no longer pay it's debt it has 1 of 3 options:

1) Default - the U.S. won't do that.
2) Raise taxes - how much can you raise taxes before you have a full fledged revolt on your hands? considering that if you took every cent the U.S. generates in 1 year (GDP), that's still only $11 trillion - almost 10% of the total debt.
3) Monetize - that is print the money to pay your bills. Problem is, when you print money you drive inflation - look up Post WW1 Weimar Republic Germany Hyperinflation.

Remember, the Fed stopped publishing M3 figures over a year ago.

As the dollar has been weakening, OPEC nations (Iran already has) are looking to move to pricing oil sales in Euro's, not dollars. Because oil is priced in dollars, foreign gov't had to hold dollars to make oil purchases. But many foreigners have lost faith in the dollar and want to get out of it. Now that Iran has started selling in Euro's, many countries are converting their dollar reserves to Euro's. This will thus push the value of the dollar down, ergo making oil prices here in the U.S. higher.

The U.S. has no more manufacturing base, we are the largest debtor nation in the world, 70% of GDP is consumer spending, foreigners are funding our consumption by lending us money (the U.S. has to borrow nearly $3 billion PER DAY just to function) and they are losing faith in our currency and debt obligations. The dollar is sitting on the edge of a cliff ready to fall off. How low can it go? Well, remember, anything below 77.83 and we are in uncharted territory, we have no idea where support levels come in because we've never been that low before. But, based on the head and shoulders pattern that formed over the past several years (with the head at 120 on the USDX), would give us a downside projection (if/when the dollar breaks critical support at 80) of 40 on the USDX. At 40 on the USDX, the dollar would cease to be the worlds reserve currency. Oil would be about $200/barrel and gasoline prices would probably be somewhere north of $8 - $9/gal. That would give the USD/MXN an exchange rate of somewhere around US1=MXN5.

Chocolohoma needs to go back and do his research. Like I said, the USDX is flirting with key support at 80, near he lowest levels it has ever been. If someone thinks we have nothing to worry about in regards to a dollar crisis, they are morons. A dollar crisis would be catastrophic and would send the world into a depression that would make 1929 look like a picnic.

The fed is printing money like crazy, the U.S. is running huge budget and trade deficits. A currency reflects the financial health of the country it belongs to. Just because you have a job and a nice home and car doesn't mean everything is okay with the state of the economy. During the Great Depression, 8 out of 10 people had jobs, but look how bad it was.

This in purely anecdotal, but one gentleman wrote an article telling of a friend of his in Canada that asked the President of a Canadian bank his views on the USD. That bank President told them they were preparing for a crash in the U.S. dollar.

They only way the U.S. can prevent a dollar collapse is to raise interest rates and quite a bit. In the 1970's Volcker was able to divert a dollar collapse, but do you remember what interest rates were like in the 1970's? I do - nearly 20%. Now, I'm not saying that's what they should be at now, but the fed needs to get off it's fat kester and start raising rates. If they don't and a dollar collapse ensues, then they would have no choice but to raise rates drastically to 15%, 20%, 25% or more.

No, chocolohoma is naive and uninformed as to the current situation of the dollar.

Answer 2

Yes a weaker dollar will kinda help the export of US goods and will somehow aid in the US ecocnomy. But for some reason it has not filtered down into the economic fundamentals. But I believe it will. Maybe in the 4th quarter of this year. Inflation is somehow contained but difficult to tell as oil prices has been firming rcently and a weaker dollar will encourage inflation. This will force the Feds to rethink their position and possibly adopt a more aggresive approach. When this happens, the yield advantage of the dollar with other majors will narrow and investors will have to reposition themselves. So this will also help the US dollar to a certain extent.

And another thing is risk aversion. Once investors lose their appetites for risk, there will be massive unwindings of carry trades. This will result in the weakening of majors mainly Euro and GBP. With the sell off of these majors, it will inevitably aid in the strength of the US dollar.

Answer 3

severe currency devaluation means value of currency declines by more than 50%. US currency declined 20%.

Answer 4

If anyone tells you they know how low it will fall or when to sell exactly they are lying. If anyone really knew that they would be able to see the future and there would be no end to the money they could make with that kind of information. The best you are going to get is an educated guess, but it still a guess.

Answer 5

Currencies fluctuate. Having a lower dollar can be useful. It means that people in other countries can buy Our exports more cheaply by their own standards. That helps lower our export deficit.

I don't think we have any thing to be overly concerned about.

Answer 6

United States of America:
Inflation is going up.
Growth is going down.
Oil is up.

Not a very good combination.

Mexico:
Inflation is going down.
Growth is going up.
Oil is up.

A very good combination.

United States of America buys Oil.
Mexico sells Oil.

You do the math!

Answer 7

Wow that guy 4xtrader is really giving you some good economic education.