Why the U.S. Dollar Will Continue to Lose Value

Below are the major reasons why the U.S. dollar has steadily lost value for decades now and is now teetering on the brink of survival:

(1) The death of the gold standard in 1971 when all controls on monetary expansion were lifted and no sane controls against unlimited monetary expansions were instituted;

(2) Massive foreign U.S. Treasury holdings and foreign ownership of the U.S. stock market currently prop up the U.S. dollar yet foreign interest in purchasing more U.S. securities of any kind is massively declining;

(3) Solutions that have solved past crises such as the 1997 Asian financial crisis involved contracting money supply, significantly raising domestic interest rates, and cleaning up and strengthening the domestic financial sector by allowing financial institutions with poor risk-management policies to fail; and

(4) The U.S. Federal Reserve’s choice to “paper over” problems as their predominant response to this crisis instead of implementing sound fiscal policy. Though this strategy provides temporarily relief to faltering economies and stock markets, such as the Nutrasweet-enhanced 266 point rally in the DJIA yesterday, this tactic only creates more massive bubbles or merely delays bubbles from inevitably deflating. Monetary expansion provides the “illusion” that things are getting better when in fact, they are becoming worse.
The U.S. Federal Reserve is creating a worldwide monetary crisis through the following tactics– massive U.S. dollar monetary expansion, artificially low interest rates, and massive bailouts of financial and housing institutions such as Bear Stearns, Fannie Mae, and Freddie Mac that only further weaken an already fragile financial infrastructure.

Comments

[xsuddensam:]

Mr. Kim:

You are dead on the money!

2008 Jul 30 06:11 AM

[User 113229:]

I think you're right Mr. Kim but does any of it really matter?

2008 Jul 30 09:16 AM

[NOWHEREMAN:]

Dollar Gap closing in progress, 74 plus.

If the economy is in better shape than I believe, then the 2/3rds that comprise it will have pent up demand which will surface sooner than later and oil will take off again but the Fed will have to raise rates and will destroy the financials.

Destroying the financials will destroy the dollar and the markets leaving the Fed with less credibility.(ha,ha)

The Fed remains on hold until 2009, they stop releasing minutes because they finally realize they are exacerbating the velocity of money supply.

The Dollar is screwed regardless, fixing the Financial markets will create Trillions of dollars. Just like it moved from 80 to 120, expect it to move from 80 to 40.

2008 Jul 30 10:01 AM

[Depressedal...:]

Right on Target! A lots of good "common sense." But YOU forgot one thing! In this "globalization economy" WE won't be the ONLY economy to "go down the drain." Many financial news articles now state that India's economy has already "hit the wall" and that a lot of other world economies are already experiencing problems like India's. Globalization is a "two-edged sword." It works like a gem for US business who wish to save money from labor costs and "other costs" but once ANY "fiat" or paper money currency encounters a specified number of financial/economic crises; it fails and collapses! How many European/Asian companies have their monetary investments tied into the American economy/financial institutions? With this being said, the old saying still applies...."When America sneezes, Europe catches cold." If our economy crashes, it won't be long before the "metal" of "globalization" will be put to the test! Russia now is on the "gold standard" in anticipation of the "awaited moment of the collapse of the US economy. But what IF the rest of the world's economies currencies collapse as well because the gold standard has been abandoned in Europe as well! Like a house of dominoes, all it takes is the weakest link to start the momentum of collapsing economies throughout the world....and it DOESN'T take an economist to see this as a very important and plausable scenario from occurring!

2008 Jul 30 10:03 AM

[onzilla:]

continues to amaze me how people generically say 'the dollar' - well, the dollar will lose value AGAINST WHAT? if you are talking other currencies, I'd say WHICH ONES?

Most people view the USD trade as one against the Euro (as the biggest component of the USD index). Well, this is a two sided trade and although you and all the bank economists that i have ever encountered (and that is a lot) rely on 'fundamental' analysis - of Balance of Payments, etc. The record of these people is DISMAL.. worse than 50% in many cases.

So where does that leave us? Look at short term interest rates. USD against JPY - i'd vote for USD... USD against EUR - rate spread is close but on a PPP basis, USD is 20% undervalued.

Could it be that all of those $4T in USD reserves piled up offshore are used to buy american PRODUCTS, instead of treasury bills? Net exports less petroluem for the US is positive in the last year for the first in many. My guess is this trend continues.

USD - against what?

2008 Jul 30 11:47 AM

[Velshan:]

DDW is right. The world is very much linked to America. But the world economy is also more complicated.

1. India has always suspected American Financial manipulation and never allowed more then about 30 Billion in US$ reserves. Something that they can manage.
2. Arab countries have 600 Billions in US$ funds. A loss in US$ value will not much affect them as it is quite out of their local economy and are managed by American & European Financial consultants.
3. Russia was manipulated to buy 150 Billion in US printed papers. They are very aware of their potential loss and has been quietly pushing to purchase electronics and food industries in Europe with that money. They are doing their best to get out of Dollars. They are also trading oil in many other currencies.
4. Japan which has huge amount of US$ has already reinvested them in third world countries in South east Asia and is managing fantastic profit making and very productive manufacturing empire.
A loss in value of US$ will affect this empire only if American imports decline. But Japan will not suffer much. Already plenty of textile related investments by Japan has stopped exporting and are supplying to local markets at much cheaper prices.
5. China has also taken Russian & Japanese approach and has reinvested US$ into Africa for control over Oil reserves.

So my friends. Please understand that world is quite safe. America has underestimated the rest of the world and will soon learn much more. The financial wizards are going to understand that God made all men equal.

2008 Jul 30 11:57 AM

[CaptBob:]

All true, but all ancient history.
The realizations of today are merely vindicating yesterdays "crazy" predictions of the economically literate.

The majority of the grasshoppers are wed to their good times and remain blissfully confident that another helping of "this is the Bottom" pixie dust will set everything right, and that terrible chemotherapy is really not needed.

Here's to your health! Have another glass of "good times", all is right with the world cause ----we're really good people!!.

This original content is not to be used in any "Snowman"-(Abominable) - speeches.

2008 Jul 30 12:10 PM

[CaptBob:]

What goes here?? Censorship--I thought I had cleverly hidden my "Abominable" reference to a current candidate--the dispenser of "Pixie Dust" under the "Change" Label. From all but the Astute, no offense meant.

Let's see if you can do it again??

2008 Jul 30 12:16 PM

[jdl51:]

I don't understand how the dollar can go anywhere but down if we continue to add trillions to the repub debt. The latest deficit numbers don't include the cost of the war so you have to add another 175 billion to the 480 billion and it's supposed to go up from there. If they extend the 2001 tax cuts then we're talking in the trillion and a half range year after year. So all these treasury bills that will be flooding the market in the next few years will make the dollar worth more? And if China, Russia, et al start divesting themselves of their dollar holdings you're going to see interest rates through the roof which will bring this country to its knees. Since St. Ron the repubs have gone from one trillion to now 10 trilliion and counting. What happened to GOP fiscal responsibility?

2008 Jul 30 01:00 PM

[carey_jim:]

in the absence of free trade, currencies can't really reach a "true" value, and trade has never been close to perfectly free in the world we live in, only relatively free.

Unfortunately, world trade is getting less free today, not more free. It just suffered a major setback at the WTO: www.radionetherlands.n...

The relative values of currencies are just as political as both trade tariffs and the dumping of goods onto markets are political.

The Chinese communist government, as everyone knows, sets the value of the Renminbi and not market forces.

The Euro can only work as a world currency if Europeans continue to allow free trade in Europe the way the United States has allowed free trade across states for at least 200 years. But Europe does not have a history of cooperation, to say the least.

The dollar's strength comes from our history of being the most purely capitalistic country in the world and with the longest history of stable government.

The dollar has already fallen so dramatically that many other countries are afraid to face the consequences of our cheap exports and are voting against free trade. Why should it fall any further under those circumstances?

Japan, for example, has long refused to allow market forces to push the value of the Yen up because it does not want its internal markets disrupted by a flood of cheap dollar based imports. Also, as everyone knows, the Japanese have tariffs that prevent many goods, made in America, from entering their country.

Certainly the United States economic house will need to be "put in order" and the American people will have to face the consequence of their own bad economic behavior and that of their leaders. But if political chaos follows, the old tools will be sharpened and pulled out for use: trading restrictions, tariffs, currency treaties and the other familiar POLITICAL and MILITARY methods.

Free markets are a luxury that strong, self-confident people and nations indulge in. Poor, distrustful, and scared people circle their wagons and keep their eyes firmly fixed on their food, water and weapons.

2008 Jul 30 04:08 PM

[Did U Think...:]

Thankyou for your diagnosis and prognosis, Dr. Obvious.

2008 Jul 31 04:25 AM

[phdinsuntan...:]

worldwide monetary crisis ? naa, just a healthy devaluation of RMB , YEN and exporters to the US to keep the trade flowing...

2008 Jul 31 08:16 AM