Monday, October 01, 2007

The Ever-Diminishing Dollar

The US Dollar continues to plummet in the world market at a somewhat alarming pace. And, with that drop, the buying ability of the American public drops. So, you ask what does that mean? Well, let's see....

One of the main factors for the weakening dollar is the decreased interest rates we have been paying. While everyone seems to enjoy low interest rates, it weakens the dollar because investors who buy Treasury bonds priced in dollars get a lower return. While the weaker dollar helps American businesses because it makes exported goods cheaper, it hurts American's who might be trying to buy from foreign businesses. Therefore, it helps the trade deficient by making American good cheaper and international goods more expensive. Sound good? Yes...until...

All those dollars come back to America. Countries with extra dollars have been happy to lend them back to us — buying up hundreds of billions worth of government debt. All this is fine until those overseas buyers lose interest in our Treasury debt. To keep those investors buying, the Treasury pays higher interest rates and that raises the cost of all forms of borrowing for Americans. And then you get some serious inflation. Not so good...

I guess what I'm getting at is that the dollar works on a very complicated system of checks and balances and, for the most part, the global economic system has worked its way through many bumps. Yes, the dollar stands at all time weak levels but that should help American business. And as business grows, the dollar will get stronger. These things happen and it's no reason to panic like the media would have you believe. It's just part of a big cycle...hopefully.

1 comment:

Justin said...

Thats it....WVU lost...the damn dollar is loosing its value...."OH CANADA...."