Why is the US dollar devaluing?

Question

A friend sent this link to me http://onlinejournal.com/artman/publish/article_1948.shtml

and if this guy is talking straight this is a HUGE problem and America is on a downward spiral into the abyss. Shouldn't our government be taking steps to prevent this? What can they do?

Answer 1

Every now and then someone comes up with one of those alarmist articles about the national debt, federal monetary policy and Alan Greenspan's liquor preferences. Makes me wonder where they've BEEN all this time.

The so-called "de-valuing" of the dollar is the inevitable consequence of TWO factors:

1. Going off the gold standard, which at one time was the "real money" that backed up the paper kind, and

2. A globalized economy with which we are involved at every level imaginable.

As to the gold standard, the "value" of a greenback was easy to figure out; simply take the number of them floating around and divide it into the value of all the gld in Ft. Knox (and elsewhere) and you've got a number. Obviously, as the gold supply increased, so did the value of a dollar, and as more dollars were printed, the value of each went down. Gold back then was worth $32.00 an ounce no matter HOW much of it there was lying around.

But that's kind of a silly way to figure the value of a dollar, because its tied to pieces of shiny metal that just sit in the basements of federal repositories, and the value of the gold was established arbitrarily at 32.00 per ounce. Wouldn't it make more sense to value the dollar in terms of the commerce in stuff people actually used, produced, consumed, bought and sold? Take OIL, for example! Anyway, when the $32.00 per ounce valuation was abandoned, gold got to be REAL valuable -nearly $600 an ounce! Gold joined coal and McDonald's hamburgers and the salary of sports figures as something whose value would be determined by what people were willing to pay for it. And the dollar, being a universally accepted unit of exchange, became a yard stick that everyone could regard as a more-or-less accurate indicator of the value of anything. And as you would expect, that value would change, second-by-second, based on who was buying and selling what to whom and for how much. So, rather than saying that the dollar has been "devalued," let's just say it is constantly being "re-valued," OK?

And that brings us to a globalized economy, which, taken as a whole, is in pretty good shape these days. An essential attribute of globalization is technical connectivity, which allows ME, sitting here, to trade stocks on the "Hang Seng" exchange in Hong Kong as we speak. The article which scared the poo out of you mentioned, with great alarm, that even slight movements in the exchanges of foreign countries are reflected in our own stock market. I certainly should HOPE so; otherwise, we'd be perilously out of touch with world wide economic activity and our stock market would probably carry a much smaller capitalization than it does now, or maybe even be out of business.

Although one may get a sort of sinking feeling when we realize that the purchasing power of a buck tends to get smaller rather than greater with the passage of time, we on the other hand might feel a bit of a lift when we also realize that there are more dollars around -and that's exactly what's what with the US economy, as a whole. Sure, sure, the individual dollar today is worth 90 cents compared to 5 years ago -but on the other hand, for every dollar I HAD 5 years ago, I now have a dollar and 25 cents.

The writer attributed his imagined economic demons to some fiendish plan of G W Bush and Alan Greenspan to achieve personal wealth at the expense of, well, everyone else. But let's take a look here. First of all, no matter who gets rich, it is going to be at the expense of SOMEBODY else, because someone has to transfer their wealth to you. So I ask you who has become wealthy at no one's expense? Answer: nobody. That's the way it works.

But the darker allegation is that the American economy as a whole, and the financial security of individuals, has been assaulted by these two bad guys, and the evidence is "heavily mortgaged" assets. I doubt it.

If you want to see what's really at fault, go look in your driveway, or your neigbor's driveway. See that big gas guzzling SUV with the trailer and boat there? Didja BORROW money to satisfy your hunger for care-free days on the lake, impressing your friends and yourself with your possessions? Funny thing: The number of days taken off work because of snow seems to have risen in porportion to the number of SUV's purchased so folks can get through the snow. What's THAT all about? What about your house (or your neighbor's house)? What kid of mortgage do you have? One of those deals with low paymenst up front and the escape hatch of re-finance when they go UP? Have a home equity loan? Second mortgage? If you sold everything you have and paid off all your bills, what would you have left over?

What I'm getting at here is that the typical American lust for consumption, driven by advertising that shows us the "good life," is as much at fault for a vulnerable economy as anything else. If the country as a whole is a debtor nation, its is precisely because it is made up of people who are very much in debt. And that's what happens when you buy to satisy WANTS as opposed to satisfying NEEDS. Truth is, if everyone traded those fat SUV's and over-size pickup trucks for a basic 4 door sedan, consumption of gasoline would plummet and the price of oil would drop and you'd see that dollar take a little bounce, wouldn't you?

Curiously, in my mind, people want the GOVERNMENT to cure a problem of the individual's own making. The last time THAT was tried we saw cars backed up for miles waiting to get a 5 gallon ration of gasoline. Go figure.

I've attacked automotive lust just as an example, but the same thing applies elsewhere. People want houses sufficient to shelter 8 people, but only 4 actually live in them. People who survive on TV dinners heat them up in "chef-equipped" kitchens. You know what I'm talking about.

Because we are fortunate enough to live in a country whose productivity is increasing, and because we are fortunate enough to live in a world with economies that buy our stuff, we can keep it going, for now.

But don't kid yourself about the underlying causes of our exposure to a serious reversal being some plot that the Pres and Fed chairman are cooking up. Look instead in your own backyard; you know, the one with the big stainless steel grill set from Lowes, the one with no payments due until January 2008. THAT'S where the problem is -and the solution.

Answer 2

the U. S. greenback isn't person-friendly foreign places funds. It relies upon on the call for and grant interior the foreign places funds industry. The FED,in actuality, has on no account revealed its objective. as an occasion, it needed to decrease interest fee, or devalued the greenback via determining to purchase government money owed noted as QE2.The greenback has been depreciated extra effective than 40% so a procedures for the reason that QE1. The debt subject concerns have not been solved this way. the upward push in funds grant and espresso interest fee have led to the greenback to pass into new area of interest in Asia. The inflow of greenback has led to appreciation of community foreign places funds, and a devaluation of the greenback. The FED has not desperate yet what that is gonna do after the tip of QE2 in June. you will guess it like me, that it will quit determining to purchase government money owed. we can not be afflicted by inflation much extra.

Answer 3

A nation's currency is based, on a variety of things such as foreign investment, economic position and how many goods and services people are buying from businesses. So in comparison to the USA, many currencies lets the take Euro for example would go up if their economies are doing well, same goes for countries like Canada where 1 dollar Canadian is worth, 0.95 cents American.

Answer 4

The US stock markets are helping to devalue our currency along with big business because they want to go with the North American Union thats hiding just behind the curtain. The other fact that kills the dollar every day we lose more and more exports and just start importing, the loss of those jobs with many others has made our economy weaker than George W in a room full of 9/11 truthers.

Answer 5

It is only a minor part of the planned destruction of the United States being carried out by the military that took over the White House in the year 2000

Answer 6

I confess I didn't want to read the article...but I can tell you the reason for the devaluation of the dollar.
For the last several years the Federal Reserve lowered the interest rate during a cycle of recession. This made money "cheap" and allowed record numbers of Americans to purchase homes and stimulate the economy.
This "cheap dollar" led to an adverse exchange rate...making it more expensive to buy foreign products and more appealing to buy US made products....and conversely made US products more marketable abroad
It also made it less appealing to travel to foreign countries and more appealing to travel in USA...not only for US citizens but also for foreign travellers to come here.

Now that the economy is booming again, the Federal Reserve is raising interest rates so money is no longer "cheap" and the dollar value is increasing against world currencies.

Answer 7

Problems with bank financing sub prime mort. Despite the doom and gloom it still costs more to buy a Big Mac in Europe than in America - the Euro is believed to be inflated by 28%. Read this week's edition of the Economist.

Answer 8

No reason to fight it, just do what big business is doing...and sell the dollar vs other currencies. That way you can help them export products, buy stocks on the cheap and make it more affordable for foreigners to vacation in the States.

The dollars decline is only beginning, you think it's low now, wait until EUR/USD hits 2.0000-2.2500.

Answer 9

gcb, where are you living? It certainly isn't booming in my neck of the woods. A major plant that has been here for ages is shutting down. It used to employ over 50,000 people. In one block on the east side, there are 20 foreclosures. People are out of work and crime is rising. How can you say the economy is booming?

Answer 10

The American dollar does not devalue. Other denominations like the Euro, rises in value, so it takes more dollars to buy the same things in Europe.

But the American dollar does not devalue

Answer 11

Yes, the dollar is worth nothing if the government says so, What can one person do? Get ready for the worse ride in your life.