What a weak dollar means for you
Filed under: Food, Saving Money, Recession, Special Reports
Have you seen the headlines lately? The news seems to be loaded with talk of new entitlement programs, federal spending projects, angry protesters, Obama talk, global elections, etc. Well, what's new? And most important, what does this mean for you? Behind the President's comfortable rhetoric and agreeable headlines about the failing economy lurks the powerful vote by global trade participants. That is, the depreciating US dollar has fallen to 14-month lows compared to a basket of foreign currencies. I must sound the alarm because in the end, we will pay. A falling dollar will lead to inflation, and the US consumer will gradually feel the effects.Now, some Washington elite may try to cloud this fact with brand-spanking-new spending projects to stall inflation, and in turn play a good political game so we vote them back into office to reseal the economic band-aid. However, the voice of market participants is one vote that is hard to manipulate.
Foreign investors who trade currencies, commodities and assets act as voters in the global economy. Their hedging and speculation are votes that influence the value of our dollar, which is the base currency of the world.
There are many reasons for the gradual fall of the US dollar. Recently, The Independent, of London broke a story about secret talks between Russia, China and several Gulf Arab states to devise a plan to trade oil in other currencies instead of the US dollar. The deadline for currency transition for oil is 2018, which makes this an important issue. In the meantime, as Sarah Palin mentioned in a Facebook note, "[this is] further proof of the need for energy independence", but most important is that, if this were to happen, the US dollar will be crushed by 2018. The countries accused of participating in these secret talks denied all allegations. But, it wouldn't be a secret anymore if say, Russia snitched on China. But, the markets looked at the fundamentals, and knew very well how to react.
This Independent article sent fears rippling through the markets. Speculators fueled a rally in commodity prices and, in turn, the dollar was beaten down severely. Gold hit all time highs as investors fled in panic. Gold is a hedge for the US Dollar and fear is what pushed those hikes. The frenzy that took place on Wall Street this past week raised a red flag that sure is visible around the world.
The problem with the US dollar is the increasing money supply that far exceeds global demand. It is clear that global participants are trying to rid themselves of the depreciating dollar, yet the Fed continues to print more, and DC politicians are calling for new spending. When domestic spending becomes exhausted, the American consumer will pay higher prices to balance the aftermath of the recession -- hence, the term inflation.
For now, Asian and European Central Banks are trying foreign exchange intervention as their main monetary tool to prevent the US dollar from falling against their currency. The world relies heavily on the dollar as a base currency, but the WSJ article states that foreign intervention made little difference. A weak dollar helps with US exports, making domestic goods cheaper for foreigners, and thus balances out the world economy. This is a good thing for trade, but again, the US consumer will hurt in the long-term. One can argue that the increase in foreign investment will bring back the dollar to its value before the increase in money supply. For now, even foreign demand is low. This leaves many people anticipating the Fed's next move.
Reader Comments (Page 1 of 3)
10-15-2009 @ 11:38AM
dini said...
its all part of the plan. you can kiss the usa goodbye.
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10-24-2009 @ 3:04PM
JAmes said...
It doesn't mean anything unless you have a whole lot of money in you wallet to depreciate... So don't worry about it.
11-01-2009 @ 10:39PM
bub said...
That's about the size of it, Welcome to the new world order, I hope you rotten democrats will burn in hell.
10-15-2009 @ 1:36PM
Jack Ries said...
It is our own fault that this country is fading..We keep re-electing the same old crony grafters into office.Term limits and the abolishing of the political parties would be a huge step forward to correcting these problems, along with strict regulation of the financial markets. Do I think it will happen? Not likely, sorry to say.
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10-15-2009 @ 2:40PM
Ryan said...
WELL, what did you expect?? They can';t flood the market with wothless $s and not expect the value of them to go down (econ 101 dummie). We are headed toward a total colapse and the politicians think all they have to do is print more money and BUY our way out of it, just like they try to buy our way out of everything. Just because that is the way things work in Washington does not mean the rest of the world will go along with it! We must have a revolution in this country SOON or we may as well bend over and kiss our ass good-bye. WAKE UP CITIZENS - NOW!!!
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10-15-2009 @ 6:34PM
Rich said...
Yes, you are right on..when will the American people wake up
and vote out those who have been in office for 40 years and install a new political party? it could work.
The both partys are destroying the American way of life.
10-15-2009 @ 6:20PM
frank said...
Slow Federal spending to N + 1 %...............remove investment
taxes for 5 yrs. (capital gains to -0-). BANG............we are off to
a new Era of Growth and Prosperity............Socialist Democrats
refuse to do this of course, because they have Office and the
dependency on taxes to get relected. In 2010 the Democrats
will just keep blaming the stagnant job growth on Bush but they
will all be swept from office..............then finally the rebuilding can begin in earnest, finally !
Reply
10-15-2009 @ 9:14PM
Beyond Concerned said...
Buy Physical Gold or ETF... ticker GLD as it is backed by real gold and the shares can be easily bought and sold...
This Aint Gonna' Be Pretty !!!
Reply
10-18-2009 @ 9:36AM
John said...
The ETF, GLD, is partially backed by physical gold. In the portfolio mix are derivatives and commodity futures contracts. In addition, the physical gold is not physical but a receipt showing ownership of troy ounces, bullion. There is also an annual fee charged for the cost and carry as well as the ETF charges an annual fee for management. In short, another mutual fund, but tradable during the day, as opposed to mutual funds being redeemed after the market close.
10-16-2009 @ 8:30PM
Henry said...
Pretty soon goods made in China will cost the same as goods made here.I'm not really sure if thats a good thing.
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10-15-2009 @ 10:49PM
jack said...
Dini, is right!!! We have been witnessing the "planned destruction of America" for a very long time. it is so sad for my children and grandchildren.
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10-16-2009 @ 2:02AM
Verne said...
Inflation is not "caused by domentic spending becomimg exhausted" however; all who use dollars to conmsume or to save or invest will take a big hit in value because oof injflation. Inflation is just more dollars chasing the same amount of goods. The value of the goods has not gone up in value, the value of the dollar has gone down.
The FED could halt this inflation and create a strong dollar, however they seem to be on a course to monitize debt and severly weaken the dollar. The dollar has lost 15% IN 6 MONTHS!
I am investing in inflation hedges of which there are many. However; watch out because when dollar buyers, China and other countries, refuse to take more dollars the Governmenmt may decide that the American citizen may be the buyer of last resort and decide that cash funds held in savings, 401K's and other investmenmts could be requireds to invest in dollar's.
We are not there yet but monitarization is taking place today.
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10-18-2009 @ 10:11AM
Avril said...
The USA is and has been monetizing its debt, simply by printing more money and then most recently by buying its own Treasury bonds and notes, artificially keeping US interest rates low.
Second point is that other nations are not "buying" dollars, they have dollars due to the deficit balance of trade where the US buys more from them and pays them in USD's. It is the deficit which gives them more dollars. These nations do not want excess dollars so they spend them or sell them. These nations buy US Treasury bonds with USD's, if they are paying anything of interest. Presently, the US is not paying any interest (a situation similar to Japan's for 20 years.....think of that time frame that the US is entering) so these creditor nations are buying commodites which their citizens can use (oil, copper, sugar, rice...NOT gold). The wealthy individuals and corporations are buying real estate or other businesses and using the devaluating USD.
10-16-2009 @ 2:26AM
Lee said...
Inflation is not "caused by domestic spending becoming exhausted" however; all who use dollars to consume or to save or invest will
take a big hit in value because of inflation. Inflation is just
more dollars chasing the same amount of goods. The value of the goods has not gone up, the value of the dollar has gone down and it takes more of them to buy the same amount of goods previously bought.
The FED could halt this inflation and create a strong dollar, however; they seem to be on a course to monitize debt and severely weaken the dollar. The dollar has lost 15% the last 6 MONTHS!
I am investing in inflation hedges of which there are many. However; watch out because when dollar buyers, China and other countries, refuse to take more dollars the Government may decide that the American citizen may be the buyer of last resort and decide that cash funds held in savings, 401 K' s' and other investments could be required to invest in dollar's.
We are not there yet but monitization is taking place today and the buyers of our dollars have put us on notice.
Reply
10-16-2009 @ 4:59AM
wim said...
Am already feeling the weak Dollar pain since I live in Germany and my pay is in USD.
Reply
10-18-2009 @ 6:16AM
Armistead12 said...
Buying gold is really just another crap risk. It's doing well now, but few can afford it. Gold is just another commodity that's traded and can lose it's value as quickly as it gains it, but it is a safer bet than the dollar.
We will never vote in new politicians. It doesn't matter, we are stuck with a two party corrupt system where each seat is bought out by a special interest. The Dems and Rep argue so many issues is just a smoke screen..They keep America fighting over idealology, so we don't care what they do.they want and will keep power.
You wonder how the masses fell behind HItler as he destroyed Germany, our masses fall in behind our parties that are destroying America.
We will be a two class society in 10 years, 90% poor. What the Dems are doing now we will not be able to recover from. Instead of businessmen in Washington we have idiot lawyers making law to protect their own....we are a doomed nation.
Reply
10-18-2009 @ 8:15AM
jim said...
PEOPLE must wake up ! YOU must not allow this dying dollar bit ,However the only way is at the ballot box even with oblunders acorn rippoff (made up votes ) IF you want your dollar and nation back then grow up and in 2010 vote them out ! tell me exactly when under a republican regime did we have this kind of dying dollar ??? hmmm dont know ? look it up its not the party its the people in the party both dems and republicans start in 2010 you and me must reverse the trend ! for whatever reason this country allowed a removal by majority of rep in office and wanted democrats ,well ya got them LOOK AT WHAT HAS happened in 2006 when house and senate became under control in 2006 IT WAS AND IS THE BEGGINNING OF THE END OF THE DOLLAR learn from history and get the dems OUT! do it now or you wont have to worry about 2012 it wont matter !!! we do not need an independant to think correctly you must get more involved know the issues and vote republican or kiss your ass ets good by (what you have leftanyway!)
Reply
10-18-2009 @ 9:59AM
Avril said...
How it works, IF you are in debt or a debtor nation (the USA) you will be paying off your debts with cheap money. The owners of the debt are getting the devalued currency, which they do not want as it has less and less value. So, in turn, as they are being paid off the owner (creditor) is selling that currency and buying something of real value, (real estate or commodities). None of the creditors want paper assets, that being bonds and fixed interest investments.
The micro-economics of the falling currency is such that your debts are paid off with cheaper money, however your purchasing power for imported goods decreases. The individual entities are thus religated to purchase internally made goods and stuffs, thereby aiding the micro economy.
If you are "out of the loop" (have no money to invest in a global economy) you become part of the food chain for your own micro economy. Your best investments then become commodities that people need and use, (food and shelter), however you must be aware of the laws that control these items, such as tenant laws, taxes, insurances, spoilage. You do not want to own gold as in many economies you cannot own the physical gold, it is also hard to transport, and lastly to have use of the gold you must bartar it for a physical commodity or fiat currency (you cannot walk into a grocery store and chip off a piece of gold and get bread nor can you purchase a home with a bar of gold).
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10-18-2009 @ 10:54AM
noyb said...
Everyone who believes that Obama, Reid, Pelosi, Bush, and Cheney are/were the greatest thing since sliced bread had better wake up. They are all going to go down in history as the people who tried to sink the greatest civilization on earth. Quit electing politicans who SPEND OUR TAX DOLLARS LIKE DRUNKEN MONKEYS!!! WAKE UP PEOPLE!!!
Reply
10-18-2009 @ 11:35AM
ee3dc232 said...
Our politicians (the lying dogs we keep voting back in office) are the destruction of this great country. When you have the same politicians coming back term after term, they just get embedded in the system. They stop thinking about what is good for the country and the people. They lose track of who's money they are throwing away. They spend like drunken sailors. They think about their own worthless butts and how much money they can steal from us. They will sell our country down the drain. Which is what has been happening since the Jimmy Carter days. It's a disgrace. The only thing that will stop them is to get those old geezers out of office. Ted Kennedy was in there until he died, Sen Byrd has been there since birth, I believe. Old stinky Harry Reid the biggest disgrace on the hill and the one from the wizard of oz (Pelosi) another disgrace, has been there way too long. It's time, voters, to get them out of office, it's your obligation to do that to save this country. Start there and work your way from the top to the bottom. This is the only way this country and it's people will be safe.
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