The U.S. dollar has fallen to its low for the year. Anticipating a recovery, many investors are moving from relatively safe dollar-based securities back to stocks. With the Fed keeping interest rates artificially low and the possibility of further declines in the dollar, investing in the U.S. currency is not very attractive. How will this affect our economy? It can get complicated, but a couple of key points are worth highlighting.<\/p>\n
First, a weaker dollar means it takes more of our (U.S.) currency to purchase a given quantity of imported goods. Specifically, oil prices will rise, which will increase the price of much of what we buy.<\/p>\n
Second, our burgeoning national debt must be financed with a weaker dollar. Although the Chinese have played a big role in the past and currently hold about $1.3 trillion in U.S. dollars, they are becoming less interested in financing more of it. With Fed-induced low returns, they might be better off holding Euros, British pounds, or a market basket of currencies instead. One possible short term solution is that the world will view the dollar as the preferred currency and will continue to hold them even with a low rate of return. Recent skepticism from world leaders suggests that this will not be sufficient. What is more likely is that either Washington will have to print more dollars or the rate of return on dollars will rise. Both of these alternatives are inflationary.<\/p>\n
By the way, some Keynesians claim that a weak dollar is good for imports because U.S. products will cost less abroad. The problem with this idea is that increasing production costs caused by the weak dollar (higher oil prices) can easily counter this effect, so don’t count on this over the long term.<\/p>\n
The bottom line is that Obama’s massive spending has sown far too many seeds of inflation, and an economic upturn is the water that will make them grow. Unfortunately, this means any recovery we get in 2010 will probably be modest.<\/p>\n","protected":false},"excerpt":{"rendered":"
The U.S. dollar has fallen to its low for the year. Anticipating a recovery, many investors are moving from relatively safe dollar-based securities back to stocks. With the Fed keeping interest rates artificially low and the possibility of further declines in the dollar, investing in the U.S. currency is not very attractive. How will this […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts\/126"}],"collection":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=126"}],"version-history":[{"count":0,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts\/126\/revisions"}],"wp:attachment":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=126"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=126"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=126"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}