US Dollar Continues To Fall : What Does It Mean?

I'm afraid this is as much a question as it is an answer.

Why is it falling against every major currency in the world ?

US debts and deficits have been rising,tax cuts have reduced revenue,projected spending increases especially on the military look like widening the deficit,and US interests rates are very low (making a low return on US Dollar investment).

Is it all bad ?

No.The US Stockmarket is rising, low interest rates are the result of low inflation,the low value of the Dollar will make imports from Asia and the Euro-Zone more expensive and conversely make exports cheaper and therefore more attractive which should boost the US manufacturing base and lead to lower unemployment.

Sounds good to me.What's the problem ?

Well,it is only my opinion but the rise in the stockmarket is not a reflection of the strength of the US economy it is just a reaction to the weakness of the Dollar.The stockmarket is not rising nearly as fast as the Dollar is falling.To give an example the US Dollar fell by around 5% against the UK Pound and the Euro in only a month(Feb) yet the stockmarket did not rise by 5% in the last month.What we are seeing is a form of stock inflation.US stock is becoming alot cheaper to foreign investors.Forecasts project that the Pound and Euro could gain a further 5% by the end of March sending the Euro to new record highs and the pound above the symbolic $2 to �1 rate.

Basically,in global terms US stock is not rising,the Dollar,which US stock is valued,is less valuable.Low interest rates in the US are also making the Dollar less valuable encouraging investors to dump US Dollars and buy other currencies with a higher yield.This has the effect of of flooding the economies of the world with unwanted,and increasingly less valuable Greenbacks.The US stockmarket is just one of the obvious places these surplus Dollars are moving to.

If one word could sum up the science of economics it would be balance.The economic variables within US economy are no longer in balance.

Predictions ?

Many things could happen.Excess Dollars could lead to inflation rising within the US.If the Dollar continues to fall then I would be very surprised if this didn't start to happen before the end of the Summer and well before the Nov Elections.The US imports quite alot and these imports are going to get more expensive unless measures are brought in to isolate the US domestic economy which would lead to confrontation with trading partners.

Something has to give.

Economists would call it sudden correction.Inflation would effect Interests rates and your standard of living,Interests rates would hit your loan repayments and credit card repayments.Stock prices would see a massive correction and possibly over correction leading to a run.Pensions would be effected,Unemployment would rise.Revenue from taxes would fall and on and on it goes.

This will not just effect the US it will effect the world.

This economic cycle is dangerously unstable.

Any thoughts?

It is indeed a percarious situation.

The Fed for so long proclaimed a strong dollar, then sometime last year, halfway into the freefall of the USD, the tune changed.

I myself have been watching for the formation of a 'Head-n-shoulders' pattern that seems to be forming right now, and would indicate the next trend, if it makes the pattern and breaks out as expected.

Gold should be the indicator of choice right now.

As viewed as a hedge against inflation, gold has been firmed up above $400/oz, and is tracking the trends of the USD/Euro connection.

It will be very interesting what will happen in the next 30 days or less, as the dollar will recover, or continue into new negative territory.

Trade does not seem to follow historic patterns even though you would expect it to.

The Stock markets are mearly reflecting corporate shareholder appeasment with improvements in productivity. But this has nothing to do with the state of the economy, and appears to be more anomolic than economic recovery.

My thoughts, if one more country begins to trade in Petro-Euro-Dollars, then the USD is in for a serious negetive correction.




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[Edited on 18-2-2004 by smirkley]

Thanks for the reply Smirkley.I sometimes wonder if I'm the only one who looks with growing trepidation on 1/2 cent and 1 cent daily drops in Dollar value.As for Petro-Euros could you honestly blame an oil producing country for considering it? With a 5% monthly increase on value of production.

And you're right the bottom would fall out.

There are simply too many Dollars out there for a Petro-Euro switch to not have a negative effect.

Too much emphasis is placed on the tragedy of a weak dollar.
People totally discount the fact that exports from the US will be more affordable to the rest of the world and as the US is one of the main suppliers of technology and luxury items, the economy and employment market will grow. The market to developing countries is growing at a phenomenal rate yet if they can't afford the products because of a strong dollar this would fall away.
It is always forgotten that the dollar is a new currency!!! Prior to the 1930's UK Sterling was the world trading currency and the oil standard. Yet when the dollar took over the pound still survived and the UK suffered no major ill effects. It should also be remembered that as recently as 1980, the dollar was only worth half of what it is now when compared to the European currencies of that time - in the UK we could buy well over $2 for �1 whereas now we get only $1.55 or so.

In my opinion, the fall in the dollar seems to me to be a long overdue balancing out of a currency that has been over-rated for the past 2 decades.

If the world shies away from the USD to buy oil, there will be less countries stockpiling the USD for such, and less treasury bills bought, to finance the half a trillion defecit.

Japan has announced they can no longer support the USD and now are only trying to slow it's fall.

It is VERY strange that this 'hidden' conspiracy is not an issue with so many, as the world world would directly be affected by this trend.

It scares me, but I suspect the rest of the US population doest have time to consider the direction, after all, the the actual trend indicates some far more devistating issue, that may be too complex and faulty to be clearly seen.

That's fine Leveller.Except I did mention the positives in my opening post and the Dollar is now $1.90 or there abouts not $1.55 to the pound.A month ago it was around $1.80 that's over a 5% drop in it's value in 4 weeks and the trend is that $2 to the Pound by end of March.

[Edited on 18-2-2004 by John bull 1]

Originally posted by John bull 1
That's fine Leveller.Except I did mention the positives in my opening post and the Dollar is now $1.90 or there abouts not $1.55 to the pound.A month ago it was around $1.80 that's over a 5% drop in it's value in 4 weeks and the trend is that $2 to the Pound by end of March.

My mistake. I was looking at the tourist rate. Even so $2 to Sterling is no disaster.
I believe the speed of fluctuation is what is alarming most people but when the dollar rose in the 80s it's upwards rate somewhat mirrors it's downward rate now.

[Edited on 18-2-2004 by Leveller]

I think we are looking at about a 20% drop in less than 5 months since last October.

I remember well the early 80's and the reasons for the Pound falling against the Dollar were pretty obvious.Britain was the sick man of Europe and the Pound was over valued.Still it fell much more gradually.You'll also remember that although British exports became more affordable it didn't stop Britains economy from falling into deep recession.

One thing you havn't covered is the Asian reaction to the falling dollar. Asian countries are attempting to slow the fall of the dollar to keep exports up. As you know trying to deny market forces often ends up biting you in the butt. The Asian currencies will have to rise against the dollar. Are the Asians setting themselves up for a sudden drop rather than a slower, though still painful, decline? Is there going to be another Asian economic crisis?

Good point.

But I guess they think they have nothing much to lose.If the US economy goes arse over tit they will follow anyway.Japan bought serious Dollars recently,selling Yen and buying Dollars.Now the Yen too is rising against the Dollar.


On a side note did anybody read the Ferguson Report?

www.abovetopsecret.com...

Long but interesting reading.

Ferguson really does an excellent job of summarizing the state of affairs and the scenarios are getting uglier by the day. The treasury reneging on a 30-yr bond? OPEC talking about going to gold? No Asian intervention? Wherever the bottom may be, the dollar will not be landing softly.

BTW, anyone have an opinion on E-Gold?

www.e-gold.com...

E-gold is just paper.
I would be wary.


JB1 - I wonder if Fergeson has been reading ATS. I have made several posts eluding to the same, since last year.

The Bankruptcy of the United States
posted on 31-10-2003

United States to go with the Euro?
posted on 15-11-2003

The Incredible Falling Dollar
posted on 17-12-2003



(funny,...the report link is now dead)

Either way, the general direction, along with the current world outlook and position, it appears to me there is only one way out for safety....US to go with the Euro, and allowing itself to be Dollarized, for the first time in history.

Not an 'american' way to think, but how long can we pay 'credit cards with credit cards'.

Originally posted by John bull 1
I think we are looking at about a 20% drop in less than 5 months since last October.

I remember well the early 80's and the reasons for the Pound falling against the Dollar were pretty obvious.Britain was the sick man of Europe and the Pound was over valued.Still it fell much more gradually.You'll also remember that although British exports became more affordable it didn't stop Britains economy from falling into deep recession.

The UK was only in recession for a couple of years. Calling it the sick man of Europe seems to be over-reaction.
The early 80s was followed by a massive boom that went on well into the 90s.

As for the future strength of the Euro? Expect it to fall drastically.
Don't forget that at the end of this month the EC is taking on 10 new members - almost doubling in size. These new members are all Eastern European countries with poor economies in comparison to the West.

It wouldn't suprise me if the fall in the dollar had been planned to cushion the integration of these nations into Europe.

Originally posted by Leveller

The UK was only in recession for a couple of years. Calling it the sick man of Europe seems to be over-reaction.
The early 80s was followed by a massive boom that went on well into the 90s.

As for the future strength of the Euro? Expect it to fall drastically.
Don't forget that at the end of this month the EC is taking on 10 new members - almost doubling in size. These new members are all Eastern European countries with poor economies in comparison to the West.

It wouldn't suprise me if the fall in the dollar had been planned to cushion the integration of these nations into Europe.

1/The Sick Man of Europe was the name the world gave to the UK and not one I've just invented.

2/The UK was in Recession 1981-83 and again following Black Tuesday Oct 1987 and again after the withdrawal from the European exchange rate mechanism 1989.

Anyway this is not about the UK economy during the 80's as it in no way "mirrors" the present situation with the Dollar.

As for the rest.Don't hold your breath on it.Countries like the Czech Republic and Poland have been working up to this and their economies are alot stronger than you surpose. These countries are only part of the EU and will not change their curreny to Euros just yet.This is just an enlargment of the European free market.

Planned?

At the last G7 conference late last year.Other countries including UK,France,Germany,and Italy urged the US to take steps to strengthen the Dollar.Cheap imports from the USA while European Exports become more expensive is not any kind of cushion that any sane European would want.

World Economic Problem

This could be serious. But I think the US Goverment is up to something. The Fed is waiting until the USD/EUR ratio is between 1.30 and 1.40 (we are almost there) until they take action.

1. Interest rates will raise sky high.
2. US withdrawl of international support or
3. International pressure on forgien countries to repay debts faster. If they dont, US cuts of aid package.
4. US war machine escalates to reduce scrutiny of US fiscal policy.

Could result in bad times ahead

Who owns more US issued debt than anyone else? China of course and as the value of the dollar goes down and down so does the value of their investment. Now with China the interesting thing is that they force their currency to be 6 to 1 against ours which means as ours goes down, 6 of theirs go down at same rate which means China is going to maintain it's exporting but will be losing more and more money all the time. We will break the Asian strangle hold on trade by driving them broke.

China is the major threat to the world economy, I just had an amazing discussion with my financial analyst about this subject.

The US has a HUGE interest to not let the Chineese Wein (spelling ?) be the primary trading currency in the Asian Market. ie Japan.

But with the total $$ capability that China could bring to bare on the market they pose a major threat to the shift in the world market away from the dollar.

The fear is that if the USD is no longer of value to foriegn nations, they might take the Wein and now rely on China for financial support of their domestic economy. This then makes them ripe for China to "over step" borders and begin a non viloent invasion of Asia.

BIG BIG problem which could start WWIII

problem i see with the american dollar going down ... it reflects badly by making my dollar go up damit.... now i know most of you would be all like why complain about the dollar going up.... well damit up here in canada we quite sneakly steal american jobs cause your major coperations are too dam cheep to pay americans the same ammount of money we get payed...
( they pay us like 6 bucks we make 9 bucks ) ya dig...

so in essence the american dollar going down is screwing us over from screwing americans over by stealing their jobs... and damit its pissing me off...

by the way... SUCKERS SUCKERS SUCKERS SUCKERS SUCKERS

of foreign labor goes up! The Cheap Indian programmers will be more expensive than doing it at home, thus employment and manufacturing here will boom.

Yea that is what I was thinking in regards to the US goverment being up to something. By making foriegn goods and labor more expensive the US economy rolls over into the "by US Made" mode of the late 80's

Which might strengthen our economy, but at the expense of de-stabalizing the world economy which in turn de-stabalizes our domestic economy.

Its a very catch 22 situation.