Why is the American Dollar falling in value so much? is it the end for America?

Answer 1

There are mainly four reasons that effect currencys: first, the health condition and the rate of return for investment of the US economy, secondly, the balance of international payment in the US, thirdly, the level of interest rates in the US compared with those in other countries, and fourthly, the rate of inflation. There is also other reason but they are linked to the above anyway mainly pyschology of humans, wars, oil price etc.

It is a combination of all those reasons but mainly the second one that is causing the US$ to devalue. Americans have too much debt. And are importing more then exporting.

Its not the end of America unless all the US dollar holders worldwide sell US dollars in large amount simultaneously, which wont happen. Japan and China alone hold about $2trillion in cash. They will suffer severe losses if they sell dollars in large amount and will not easily find a suitable substitution. As the safety and circulation of euro, Japanese yen and gold are no better than the US dollar.

The devaulation has "some benefits" some people (Bush Administration) say; basically orderly devaluation of US$ can boost the exportation and narrow the trade deficit, particularly when the inflation is under control. They say the current account deficit is likely to drop 4% if the value of the US$ drops 10%. But this is yet to be proven.

Also American won't collapse because the US economy is still so strong and other countries are still confident about the US economy.

Answer 2

I'll add a little. I agree that the main issue is the US current account. The US has a high trade deficiet, which requires financing from other countries.
There is also a shift in some countries to hold a portion of thier foreign reserves in Euro and other currencies, lowering demand for US dollars.
I also think that as many other nations economies are growing, there is just plenty of other places to put the capital. In other words, it isn't so much that the US economy is weak, just that there are more and more strong economies to invest in around the world.

Answer 3

It's getting obvious, the American economy cannot withstand the pressure imposed by wars in Iraq and Afghanistan. Unless USA withdraw from these countries the economy growth will be further jeopardized...With Bush the All mighty in power these results are not very likely to change, a wise and dignified leader is what America needs the most; that and some responsible and uncorrupted politicians !