Why is the American dollar so worthless today?

Question

I remember when it was equal to the Euro, and now it is only worth about .68 Euro cents. It has dropped so significantly in value within the past 5 years, just wondering why?

Answer 1

Sophos is the only one close to speaking sense, although the Europeans' expectation about what the dollar will do in the future is of no more value than anyone else's random guess.


U.S. entities buy imports with U.S. dollars -- so when the U.S. runs a trade deficit (more broadly, a current account deficit), that means the U.S. is spitting out dollars to foreigners. Now, that's been the case for about 400 years (counting colonial times!) But, if that leads to more supply of US dollars in foreign hands than demand today, then supply & demand says the dollar loses value.

If foreign entities want to keep those dollars, or invest them into U.S. assets, there's no effect on the dollar. And history shows the US can run permanent trade deficits of some size with no problem at all -- there is a persistent need for dollars among trading partners, and in fact the supply of US dollars and dollar-denominatred assets outside of the US keeps increasing over time. But when trading partners want to convert dollars into their own currency, that tends to weaken the dollar.

What's happened lately is probably some mix of factors: - the trade deficits got to be a bit too big to digest, - the rising price of oil exacerbated this effect and created a feedback loop amplifying the effect - the Euro unification improved the deployability of capital in Europe, drawing some demand towards Euros. All this exacerbated more by the housing & credit issues in the US, no doubt causing foreigners to sell some dollar-based assets, while causing the US Fed Reserve to make US interest rates lower (hence uncompetitive).

People suffering from recency bias keep forgetting that these things are cyclical though. Just as could be predicted, things are already at work that will likely swing the pendulum in the other direction eventually -- surging exports will make this years' US exports an all time world record and the US current Account deficit has already decreased 20+ %.

Answer 2

The reason for the falling USD of the last few years is rooted in the nation's huge current account deficits. The deficit mainly results from the giant imbalance of your trades with other countries. The USA runs a yearly trade deficit of around 800 bio USD. This means that these funds are with foreign business partners, state governments, oil rich nations etc...As long as they believe in the USD they keep it as reserve or use it to buy goods and services, or entire companies, mainly in the USA. However, in the last year the national banks that held USD started to convert the USD into other currencies, mainly Euro. This led to a demand of Euro and offer of USD which necessarily resulted in a devaluation of the USD. Thsi process is by far not yet finished. In Europe we anticipate a even lower USD in the future. We are aware that a lower USD will make it difficult to export to the USA since the costs will increase. But at the same time it increases pressure to all european manufactters to improve their production efficiency. The same holds true for all countries you import from (Japan, China etc.)

Answer 3

If you spend more money than you actually have like for wars and what not. Money that's not based on anything just because you can print it up doesn't make it worth anything.. It just paper I'm sure someone can expand what I'm trying to say. Right now their kind of writing checks with no money in the bank

Answer 4

Both Democrats and Republicans

http://www.youtube.com/watch?v=_dmPchuXIXQ

The most powerful case against the American central bank ever written. ..... Ever since the creation of the Federal Reserve Board ("the Fed"), the American ...
http://www.amazon.com/Case-Against-Fed-Murray-Rothbard/dp/094546617X

The Federal Reserve Is A privately Owned Corporation
The depredations and the iniquities of the Federal Reserve Board and the Federal ..... Napoleon, a sympathizer for the international bankers, turned against ...
http://www.apfn.org/APFN/fed_reserve.htm

Congressman, Louis T. McFadden died under questionable circumstances since he was against the US Federal Reserve Board
http://www.geocities.com/Heartland/7006/mcfadden-frb.html
http://en.wikipedia.org/wiki/Louis_T._McFadden
http://www.youtube.com/watch?v=zJ6YiZgHei8

The CORRUPT US Federal Reserve - Robbing Americans Since 1913 (1/2)
http://www.youtube.com/watch?v=BPU8w7Bxc0A

Answer 5

George W. Bush

Answer 6

We have no credibility in the world anymore. Too much money being spent on other countries and the bl-----y war.

Answer 7

cause we fudged up society, we pay our sports stars hundreds of millions per year, george w. bush.... and people are either dirt poor, or they are rich enough for 5 families....

Answer 8

it's because the american economy is going down...Amerca is about $1 trillion in debt...so the value of our money has gone down...

Answer 9

still not agreed