frosty

US Dollar: "I'm Not Dead Yet!"

I'm not sure that anyone understands the implications of dollar devaluation or even if it's relevant. One blogger says the dollar has lost 95% of its value since 1913. Are we 95% poorer than we were in 1913? I think not. Has ANY world currency NOT devalued since 1913? I think not. Devaluation is always a relative matter. I remember back in the 60's the pound was worth $1.60 - today it's worth $1.60. What has happened? In the intervening years, the exchange rate has fluctuated between roughly $1.25 and $2.00 leaving us today back where we were. And all we can say is, compared to the 60's, neither trading partner has a currency advantage over the other, although there were certainly periods of time when one or the other did.

So, is devaluation bad? It depends on what you have to sell. If you want sell Chevys to foreigners, it's good. If you're selling BMW imports to Americans, it's not good. As the author suggests, consider all the world's currencies structured in a matrix. For periods of time you will see some currencies relative to others with + trends and during other periods with - trends. Recently the dollar has been in a minus trend against some currencies. It has happened before - during the 70's oil crisis when news reports feared that the Saudi's were going to buy everything of value in America (dollar cheap compared to riad), and in the 80's when the Japanese business model threatened to conquer the commercial (they even bought Rockerfeller Center!).

So once again we're in a pretty deep funk. However, there is still no economically significant country on earth with a political system that fosters freedom of intellect, invention, and enterprise and with an educational outreach system that reaches the vast majority of its residents. In the end, when people decide to hold dollars, they're betting on the future of America relative to others and that it's safer to hold dollars than holding bolivars, or pesos, or Euros. You may want to bet on the euro or yen in the short run, but in the long run the dollar will still prove a safer bet.