What will happen if U.S. money keeps losing its value in the next 10 - 15 years or so?

Question

I was checking the value trend of American Dollar within last 5 years (2002 ~ 2007), it has been losing value till now.
What is going to happen in next 10 or 15 years?
1-I believe losing value, helps internal economy to grow since importing goods will be more expensive, so for an industrial country like U.S. I dont think there will be a major problem for it
2-I believe we will not be the biggest consumer country meaning we will not be the biggest market in the world and europe will be the biggest consuming market
3-Our export will increase since U.S. goods will be more competetive.
4-We will still have the outsourcing problem since labour in countries like china and india are still very cheap

5-I believe its the best time to pay off our national debts since dollar is weak. It means that we pay less than what we borrowed.

Please add your comments in both optimistic and pesimistic views.

Answer 1

worry less

the trade weighted value of the dollar is up since the early 1970s and by quite a lot, even after the decline you've noticed.

with any luck, the decline in the dollar will knock some of the arrogance out of Americans. Maybe we'll even begin learning and valuing other languages again -- every prospective customer in the world likes to be sold in his own language.

manufacturing jobs may actually cease leaving the US -- wouldn't that be a change? It wouldn't be because US labor is actually cheaper, but rather because the value added by US labor [productivity per hour] is the world's highest and what causes jobs to move is output per labor hour compared to cost per labor hour.

of course, the balance of payments isn't likely to magicly right itself. I notice that as the dollar falls, the price of oil rises. [check the price of oil in terms of gold for a better understanding]. It seems that the OPEC boys are fairly smart and so we'll continue to run a BOP deficit until Congress gets serious about producing more energy here at home.

Outsourcing isn't a problem, by the way. It is actually a source of improvements in productive efficiency. Outsourcing doesn't happen unless everyone figures they'll be better off in the long run. After centuries of working at it, business usually makes pretty good decisions on this.

Somewhen out there, it is likely that China will beocme the world's biggest consumer country. Not too surprising -- they have 4 times the number of people America does.

And stop worrying about the national debt. If you look at it as a) a percentage of GDP and b) the portion of the economy promised to pay the interest you'll see that it is much smaller than it was several times in our past [usually right after a major war].


How's your Chinese?

Answer 2

I'm trying to figure out where Spock is getting that trade weighted dollars are at all time highs? The Trade Weighted US Dollar Index is at historical lows. As a matter of fact, it is currently (as of this posting) trading at 78.41. The LOWEST it's ever been is 77.83.

What you need to understand is that the dollar, at that level, is on the verge of collapse. Yes, a weaker dollar will help our export markets, but answer me this - what does the US export anymore? Besides weapons, our manufacturing base is gone. And what must be realized is that foreigners are holding trillions of dollars of our treasury securities. Every point the dollar drops, they are losing billions in the treasury holdings. For example, as the dollar has been declining, July sales of US treasuries fell from $97 billion to $19 billion - an 80% drop in foreign purchases of our treasuries. What's been financing the US economy has been foreigners buying out debt. As the dollar loses value, foreigners are not going to be willing to buy debt in a country that has a depreciating currency.

Below 77.83 and we have no idea where support for the dollar comes into play as we have no historical basis to make a judgment. A drop below 77.83 could very well trigger a full blown dollar crisis as trillions of dollars of our treasuries are dump and trillions of dollars of foreign held dollar reserves are dumped. Which would push the dollar down further. And believe me, a full blown dollar crisis would end the reign of the dollar as the world's reserve currency and would drive inflation through the roof and torpedo the US stock and bond markets.

Bottom line, a continued decline in the dollar would eventually trigger a dollar rout and a collapse in the dollar.

Answer 3

$1.00 USD = $0.50 EUR

Imagine the United States of America is a Wal-Mart.

You sell everyday $1,000,000.00 USD.
You spend everyday $1,100,000.00 USD (Payroll, Energy, Water and other expenses)

At the end of the day your bank account is empty and your unlimited MasterCard's debt is bigger.

A month passes and you need to pay at least the Minimum Payment but your bank account is still empty and you don't pay anything.

You keep doing this for a few years and Wal-Mart is now the biggest company in the city.

One day you decide you want to pay your entire MasterCard debt.

Your current balance is $100,000,000,000.00 USD
Everything inside your Wal-Mart (Including the land) is worth just $10,000,000.00 USD.

How exactly are you going to pay for your debt?

If you sell everyday $1,000,000.00 USD (Taxes) then you need to spend everyday only up to $999,999.00 USD and make $1.00 USD in a day.

First, let's close and sell all the museums, libraries, public schools, public hospitals, police stations, firefighter stations and so on.

Second, let's sell a few small states to Japan, Germany, China, United Kingdom, France, Italy, Canada, Spain, Brazil, Russia, South Korea, India and Mexico.

How exactly are you going to pay a trillion?