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Forty Years of Hurt

That’s the title of a brief piece in The Economist about the US dollar.  There are two salient points in the article, which you should pay attention to if you are paid in dollars (in other words, probably most of you).
  1. the dollar has halved since 1985
  2. creditors are having to cope with the unappealing combination of holding low-yielding Treasury bonds in a depreciating currency

Source: The Economist

If you own Treasury bonds, you are one of those creditors.  So are the Chinese, so you can imagine how happy they are with this situation.

If you are merely being paid in dollars, you’ve seen your world purchasing power cut in half since 1985.  This cuts into your standard of living in more ways than just making foreign travel expensive.  It means that all of the imports you buy are also costing you more of your purchasing power.  On the other hand, if you are an exporter, you will find it easier to sell overseas.

If you are not an exporter, you can always invest in one.  That’s the real point here.  The dollar has been weakening for a long time, but it doesn’t require you to wring your hands and freak out.  A weak dollar is neither good or bad; it just means that you have a different investment opportunity set.  Figure out how to adapt to it.  You will find that relative strength is an excellent guide.