Why is the American Currency down?

Question

What needs to happen for it to get strong again? What is causing this problem?

Answer 1

There are a number of reasons:

1. Interest rates in the US used to be relatively higher compared to the rest of the developed world. The US recovered form the 2001 recession much faster then Europe and Japan. In those countries, the central bank interest rate was still very low, between 1 and 2 ppercent, while ours was at 5.25% That means that someone wishing to buy bonds of other interest earning assets could earn more in the US, so the demand for dollars wennt up and the demannd for othere currencies went down. Now, the past few years, the other banks have raised their interest rates so the US is no longer relatively attractive for such savings, and just over the past few months, the FED reduced our interest rate to 4.5%

2. The Euro, only created in 1999, has now estabiished itself as the other alternative reserve currency for foreign central banks. they buy Euros in addition to dollars, lowering the relative demand for dollars.

3. The Sub prime mortgage fallout in the US, foreign invest,ent in commerical bcked paper that was backed by these mortages is fleeing the country and as this happens, the demand for dollars lessens.

4. This is the first time in modern history where every global region is in economic boom (minus a few nations here and there that have local problems). Therefore, where before, foreignors used to invest more heavily in the US becauuse this was where all of the good business oportunities were. Now there are lots of oportunities elsewhere as well. So the relative demand for dollars goes down.

5. The recent FED interest rate cuts. The FED des not just mandate interest rates. What it does is it "targets the rate." The funds rate is the rate that banks lend each other money. To controlt his rate the FED puts more or less money into cerculation. When it waont to lower the rate it increases the money supply, and when it wants to raise the rate it decreases the money supply. The recent increase in supply, lowers the value of the dollar... its ismply supply and demand.

People who mentions the lowering is because we buy all of our stuff from China, have it backwards. We buy all of our stuff from china because our currency is relatively strong compared to theres. Not the other way around. Now that the dollar is weakening, our trade defcit has been getting smaller for about a year now.

Also, everyone who mentioned the war, doesnt understand exchange markets. The spending money on war has nothing to do with currency. The notion that other countries are not buying supplies from us because of war is BS. Our exports have been surging the past couple of years, and that is why our trade deficit is closing. Quite the contrary, heavy government spending strengthens the dollar if there is a deficit, because it "crouds out" private savings and causes interest rates to go up, attracting more foreign savings. This is why government deficits and trade deficits are often refered to as "twins"... they tend to go hand and hand. But our government deficit has been falling fast. It was 410 billion in 2004, and is now 160 billion for the fiscal year that just ended.

As a percentage of GDP, that deficit is smaller then the deficits of Britain, France, Italy, and Japan.

The illegal immigration point makes no sence either.

People have to just stop taking there anger, whether rational or not, and just applying it to every problem in the world.

Lets think people.

Answer 2

Lots of reasons. Low interest rates in the US, high money supply relative to economic growth, the relative fiscal and monetary policieis of other nations.

The US Dollar isn't down across the board, it's down compared to some currencies, like the Canadian Dollar and Euro, but not others. Most notably, the Chinese Yuan is being kept at a constant exchange rate with the dollar.

It's also not entirely a 'problem.' Having a strong currency is great when your citizens go on vacation, but tough when you're trying to export anything. Having a weak currency makes imports more expensive, but exports more competative. A 'weak' currency can help an economy grow and add jobs, but it can also lead to inflation that errodes the real wages of workers.

Answer 3

The short answer: Because of the Euro...

Two hundred years ago, Ben Franklin proposed the American Federal dollar so that all the separate banks in each of the States could compare the value of the production for their state with the value of production in other states. This gave the U.S. a very strong currency around the world. Many levels of valuing the strength of the dollar were being compared before the dollar ever left the shores. No one in the world was doing this on such a large scale.

Now that the European Union has figured out the concept, they are doing the same thing by internally valuing production amongst each of the countries. This allows the Euro to be comparable in strength with the U.S. dollar outside of the European Union.

Instead of all the different countries having to hold up the value of their dollar against the U.S. dollar, they compare each of their country's value internally BEFORE comparing that with the value of the U.S. dollar.

And you are noticing how well this is working.

Answer 4

Because we are importing so many goods from China,
Because corporate and governmental greed is eroding the value of our currency,
Because we are spending billions of dollars a day in a war in the middle east, which makes certain politicians richer,
Because of NAFTA,
Because of illegal immigration,
There is no ONE reason why the dollar is devalued...this is a complex system.
It will become strong again when we close our borders to illegal immigration, when the was ends, when "honest" unbuyable politicians take office.
When the American people unite and say:::"WE ARE TIRED AS HELL AND ARE NOT GOING TO TAKE ANYMORE!!!!!!!!!!!!!!!!

Answer 5

the war, mainly the u.s had spend billions and billions on the war and also sorry to say it the war isn't going anywhere, and now other countries are looking at other places for supplies, and goods. Best way is to end the war and get the politics to starighten theings out and the u.s econmony will bounce back.

Answer 6

scinetisc say that now Euro will be on top