The Effects of a Falling US Dollar on the Economy of the United States Birth Pains

Featured Story

The Tribulation is a future time period when the Lord will accomplish at least two aspects of His plan: 1) He will complete His discipline of the nation Israel (Daniel 9:24), and 2) He will judge the unbelieving, godless inhabitants of the earth (Revelation 6 – 18). The length of the Tribulation is seven years. This is determined by an understanding of the seventy weeks of Daniel (Daniel 9:24-27; also see the article on the Tribulation). The Great Tribulation is the last half of the Tribulation period, three and one-half years in length. It is distinguished from the Tribulation period because the Beast, or Antichrist, will be revealed, and the wrath of God will greatly intensify during this time. Thus, it is important at this point to emphasize that the Tribulation and the Great Tribulation are not synonymous terms. Within eschatology (the study of future things), the Tribulation refers to the full seven-year period while the “Great Tribulation” refers to the second half of the Tribulation.

Many people tend to shrug off news reports that talk about the plunging US dollar. “A rising or falling dollar doesn’t really affect me, so why should I care?” The fact of the matter is that a dropping or rising US dollar affects every man, woman, and child in the country, and a continued weak dollar has significant consequences on the economy.

The first question that you might have is: what would cause the US dollar to drop so rapidly over the past 6-7 years?

There are many reasons why the US dollar has dropped, but here are the top three:

1. The United States has a very large import/export imbalance. The United States imports much more than it exports. A country like China, on the other hand, exports MUCH more than it imports. This is important. China will build up massive amounts of US dollars and US debt in its reserves, and will eventually sell dollars and buy other things (Euros, oil, gold) in order to diversify.

2. Spiraling debt and large deficits. Big deficits translate into increased amounts of debt for the country. One of the biggest reasons for the large recent deficits is the “war on terror.” It costs tremendous amounts of money to maintain the USA’s military presence, especially in Iraq and Afghanistan, and this all translates to a large yearly deficit, which becomes debt. A country has a balance sheet just like a business does, and its currency is a proxy that tells you how well the country’s “books” are looking. If a country such as the USA has ballooning debt and deficits every year, their dollars will be sold in favor of something else, such as the Euro.

3. Other factors will conspire to weaken the US currency against others in the world, such as spiking oil prices and a declining housing market. The subprime mortgage meltdown in the United States and the spiking prices of oil have resulted in a weaker US currency. Let’s take a country like Canada. Canada is resource-rich and due to the high oil prices will have a much stronger “balance sheet” every year due to those extra revenues. The United States, for the most part, must import their oil. These things all conspire to create not only a weak US currency but also strong currencies throughout the world.

Now – what is the impact of a falling currency on you, a normal citizen? Someone who may make 50k a year? Someone with a mortgage and a car payment?

Well first off, a falling US dollar means that it costs more to import goods from other countries. The US dollar won’t go as far, so it costs companies more to purchase goods throughout the world. They, in turn, will undoubtedly pass those increased costs on to you. So that imported vehicle, fresh BC salmon or bed will cost more money to import, meaning more money out of your pocketbook when you go to buy them.

Some people would argue that this is a good thing, as it would cause the US to become more self-reliant and force them to produce their own goods, meaning more jobs for US residents. This might be true, however:

1. Many US companies outsource many components of their manufacturing and development anyways and couldn’t afford to run their operation solely in the United States

2. Many people are accustomed to certain name brands and won’t be considering buying anything else.

Now, what happens if prices rise in general? This means inflation. What happens when we have inflation? Interest rates go up in an effort to keep inflation in check by decreasing the supply of money. By decreasing the supply of money in the economy, you keep prices in check. For instance, if the US government suddenly decided to print off $100 trillion dollars in new bills, the price of goods and services would leap as well.

Increased interest rates mean higher borrowing costs. Increased mortgage payments and increased car payments.

Also, a weakened US dollar means that companies in the United States are much cheaper to purchase for international buyers. We have seen quite a bit of this recently; large funds, operated by countries such as China or Saudi Arabia, are using their riches to purchase American companies or at least large stakes in them. It can be pretty hard for a company to say no to billions of dollars in equity investment if a country like Dubai comes along and says “Here is $4 billion in cash for 33% of your company.”

For a country like the United States which is helplessly dependent on imports to get by, a weak US dollar has a major impact by making these purchases more expensive. This leads to less buying power for the American consumer and increased foreign ownership in American companies. Interest rates go up to combat inflation, and borrowing costs increase. Some countries will turn inwards and become self-reliant during a period of weakness in their currency, but American doesn’t really have the capability or infrastructure to do that. As a society, we are so reliant on other countries that we really have no choice but to pay the extra costs that come as a result of a weak currency.

For anyone who ever worries about China becoming a superpower, consider this fact: China has literally hundreds of billions of dollars in US dollars and debt being held in their forex reserves; what would happen if they just decided to sell all of their US dollars one day just to spite the United States? For this reason, China will always have a sword dangling over the head of the United States and would use that as a weapon if hostilities ever escalated between the two countries, I can guarantee it. Source

Source
BanksterCrime

Don't Miss

Doug Casey On COVID Brainwashing: “Look, Hysteria Is The Problem; Not The Flu Itself”

By StevieRay Hansen

Recently, gold bug and investor Doug Casey sat down with Kenneth Ameduri of Crush the Street. Casey jumped right in saying the breakdown of the United…

Read More

Depositors Beware: Deutsche Bank Warns Trading Revenue Boom Is Ending

By StevieRay Hansen

With Europe’s benchmark interest rates still staunchly in negative territory, the long-suffering European banks, epitomized by fading German ‘national champion’ Deutsche Bank, have benefited from…

Read More

Rabobank: “Markets Are, Across The Board, Totally Divorced From Reality. Facts No Longer Matter”

By StevieRay Hansen

Make It So! Back in the 1980s, there was a lot of discussion at my college about “post-modernism”. At that point, it was in a…

Read More

How Deutsche Bank Helped Con The Public Into Believing In Wirecard

By StevieRay Hansen

By Tyler Durden More reporting on the Wirecard situation has emerged over the long weekend in the US, and none of it is flattering. As a court-appointed…

Read More

USDA Crop Report Shocker Sends Corn Futures Surging

By StevieRay Hansen

Chicago corn futures surged 8% in the last two sessions after a massive reduction to the U.S. government’s acreage estimate reported Reuters.  The U.S. Department of Agriculture’s…

Read More

“Red Flags Galore”: Companies Sold A Mindblowing $113 Billion In Stock In Q2

By StevieRay Hansen

When it comes to bearish market flow red flags, aggressive selling of stock by corporate insiders is traditionally viewed as the biggest red flag –…

Read More

US Bankruptcies Busting Out to Match 2009 Peak Mean Trouble for Stock Market

By StevieRay Hansen

The following article by David Haggith was published on The Great Recession Blog: Bloomberg reported this week that thirteen US companies (in the 50-million-plus size) filed for bankruptcy…

Read More

Who Is The Next Wirecard?

By StevieRay Hansen

Now that the multi-year saga of German fintech megafraud Wirecard is finally over, the pain is only just starting for disgraced German regulator BaFin (with…

Read More

COVID-Comeback Batters Big-Tech & Black Gold, Sparks Bond Bid

By StevieRay Hansen

Just when you thought it was safe to buy any stock – selected at random via Scrabble letters – on any dip, with levered money…

Read More

“Watershed” Moment: Is Gold Signaling Stocks Now On “Shaky Footing”?

By StevieRay Hansen

I rarely discuss financial markets these days. Although I pay attention, it’s not in the obsessive manner I did a decade ago. I mainly keep my…

Read More