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

 |  Includes: UDN, UUP
by: J. S. Kim

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.