Can anyone explain to me WHY the dollar is falling?

[Rosemary2205]

Snark is fine, but I'd be really greatful if a few of you college types would take the time to explain it to me in terms even a moran can understand.

Thanks in advance.

[lumberjack_jeff]

1. Trade and budget deficits.

In a nutshell we borrow money from people to buy their stuff.

When a household does this, their relative net worth decreases, while the person who's doing the lending and selling increases.

[stellanoir]

2. that which goes up must come down

we've been set up by the Chinese

they've been at this far longer than we

Oh joy

[Warpy]

3. First, Stupid has been using the printing press to increase the

money supply. Every time that happens, the value of dollars in circulation simply goes down. See: Weimar Germany.

Second, his tax cuts to the rich and corporate have been ruinous. They've been responsible for 90% of the deficit each year. Combine that with the trade deficit caused by offshoring, and you see that we're rapidly approaching a place where our debts are more than our assets. Foreign banks are simply not buying up dollars any more, further increasing their supply on the market and making them cheaper.

That's it in a nutshell. There is only one place to affix the blame for the now rapidly falling dollar, and that's GOP fiscal policy.

Personally, I think the buck is now slightly undervalued. However, it's going to continue to fall as long as the GOP is trying to bankrupt us.

[Rosemary2205]

7. Please don't laugh

Foreign banks buy up dollars? Like pork bellies and cotton? I never thought of dollar bills as a commodity.

I told you - moran.

[Warpy]

13. What they do is buy up our debt, pretty much the same thing

when you realize money = debt. Every rate cut makes them look at the falling dollar and realize they won't make a profit, that by the time the debt matures, they'll have lost so much in terms of worth that the interest won't make up for it.

[Rosemary2205]

15. I got it.

Thanks - I appreciate you saying it a different way so your point would click in my head! :)

Very much. Thanks.

[sepulveda]

32. actually, they do it with the actual dollars

as much as electronic transactions can be said to be "actual"

heck, i've done it many times

the market is called the Forex market - stands for foreign exchange.

it is the largest market, on a notional basis in the world - it dwarfs the bond market (which most people don't realize is bigger than the stock market), and certainly dwarfs the stock market

there are also currency futures, as opposed to using 'spot forex'

i have traded both extensively.

essentially, if i want speculate on rising Euro prices against the dollar, i simply buy euro's and sell dollars. then, i buy back the dollars and sell the euro's back. if the exchange rate has changed such that euros are now worth more, i make money off the difference in the value change. the moves are measured in "pips"

a pip is .0001 of a dollar. so if the price of the EURUSD combo (long EURO and short the dollar) goes from 1.5000 to 1.50001 that means that it now takes 1.50001 dollars to buy a euro instead of 1.50000 dollars.

that means if you were long a standard lot of EURO's in the EURUSD pairing, (which means you are also short the equivalent notional value of dollars), you could then reverse the pairing to be "even". but since your euro's are now worth MORE (and the dollar less, obviously), you make that amount of money in the exchange. in this case, 1 pip. or $10 per lot.

the EURUSD is currently at 1.5183.

not too long ago it was in the 1.2500's

that is a 2500+ pip move.

so, there is BIG money int he forex market

if you held on during that period, you could have made 25k PER lot. with a trader trading 10 lots, that's 250k.

so, there is a LOT of action in the forex markets.
a standard lot 100,000 of the base currency, is tradeable on margin, so depending on the leverage one can control 100k of euros for a few k of dollars by using margin.

i know traders who routinely trade 50 lots. that's 5,000,000 of euros PER trade. that would net them (before commissions) $500 per pip.

the point is that depending on relative demand for dollars vs. euros (and other currencies) and the relative amount of hedging , speculation, etc. that affects the value of the currency - because the value of ANY asset is related to supply and demand.

anyways, the point is that money is traded just like ANY asset class. if demand is high for euros and swissies and loonies etc. vs. the dollar, then people are buying the former and SELLING the latter. that means demand is in the former camp and supply is in the latter camp.

the banks move massive amounts of currency this way.

yes, the moves by the fed, and money supply issues are definitely part of the problem. but it;'s a cycle that has fed upon itself.

considre that in the same period of time that the S&P 500 is up 18% the dollar is DOWN 38%, so actually, the market is NOT up in REAL dollars.

but to put it most simply - the dollar, like many currencies "floats". this means its value is contingent on supply and demand

oh, btw. soros made his fortune (primarily) in this very forex market

[2Design]

34. how do you trade in this forex market - do you go to a bank or money exchange booth and change

the dollars into euros - and then later go back and change them back - or where do you do this? what is the cost of the exchange? what are the steps to doing this?

[sepulveda]

37. i trade with my brokerage

i have a brokerage that allows me to trade futures, bonds, forex, etc.

just for the record, i STRONGLY recommend that retail traders and beginners NOT trade forex unless they paper trade it for a long time to get the hang, and are very disciplined in money/risk managment. and use very small leverage. just because you can use enormous leverage doesn't mean you should.

[El Pinko]

25. The fed is trying to inflate away the mountains of personal and gov't debt crippling the economy...

Bush & the GOP are at fault for creating much of the debt (Iraq war), but the inflation/dollar devaluation is largely Bernanke's doing.

One way or another the piper will be paid, and I guess the fed has decided that making the dollar worthless was the way to go.

Welcome to Weimar America.

[Warpy]

38. That might work if they raised wages to compensate

and if we still had industrial products to export. The sad truth is that inflation has been allowed to eat into people's savings and then push them into more debt while more and more jobs have been offshored with the financial blessing of the GOP and their subsidies, increasing the balance of trade deficit.

What they're going to get is a lot of homeless and impoverished people who can't afford to feed themselves, something no rational government wants.

Nobody's accused the GOP of being rational, though, have they?

[natrat]

4. because the junta is massivly short the dollar and is on course to wreck america as we know it

[jgraz]

5. The value of currency is driven, in part, by interest rates

We're in an economy that's showing a lot of indications of oncoming inflation, yet the fed continues to prop up the markets with low interest rates. This gives currency traders a strong incentive to reduce their holdings in dollars.

[denverdoc]

6. quick 2 cents

[gerrilea]

8. The dollar has no "real" value, say like gold

It's only paper, no value and the only value it has had for over 50 years is that oil was traded for it..that's why Iran has to be detroyed, they were or are trading their oil for Euros...

Another place to get info is You Tube and search for Ron Paul, he explains it very well in under 5 minutes...

[Rosemary2205]

9. I'll do that -- thank you.

:)

[gerrilea]

17. I'll warn you, you will be upset and angry after watching him

I spent almost an entire weekend searching for the Federal Reserve and Ron Paul after "seeing him" on You Tube and my eyes were opened up...we're screwed...if we don't go back to "hard" currency...that is money backed by gold or silver...meaning you can go to any bank and get the same amount in that precious metal...

[Ediacara]

20. No currency is backed by gold or silver or gems in this day and age

It's based on FX markets which rely on debt, interest rates, and economic output to affix values.

[gerrilea]

28. Yes and that's why we're in a world of *hit now!

The money changers are stealing our wealth and value...fiat currencies will, as history has shown, will fail and that's whats happening now...

[Ediacara]

29. But they're *all* fiat currencies....

[gerrilea]

31. That's the problem...

[soothsayer]

39. Actually, debt free russia is talking about going back to the gold standard

and I hope they do!

[Hannah Bell]

43. Gold has no "real" value either, no more than any other

commodity, unless people have the illusion it does.

[denverdoc]

10. simple explanation

The dollar's value is based both on market value and the value of precious metals. As you have seen, interest rates are down. This causes more dollars to be in circulation. If more dollars are in circulation, supply increases driving down value and more dollars are printed to the same amount of precious metals. Since interest rates are low and we have large deficits this is a double whammy as we are essentially printing money with nothing to back up its value.

[Rosemary2205]

12. So

basically they are flooding the market with money - making it less valuable because there's more supply than demand - and since oil is traded in dollars, then it takes more less valuable dollars to buy the same amount of oil - and now Gas is $4 a gallon and milk is $5 a gallon.

Am I at least on the right track?

And WELCOME to Du!! :)

[FogerRox]

11. Because Bush has been printing money and lots of it.

[Junkdrawer]

14. When you export all your factories...what exactly are you trading...

for all those imports? :shrug:

Good looks and a long gone reputation for being worth something only lasts so long...

[Sal Minella]

22. A shipping dock supervisor in "Is Wal-Mart Good For America" said she sees cotton shipping out and

finished clothing coming in, hides going out and shoes coming in, bales of waste paper going out and cardboard boxes full of manufactured goods coming in. Someone else pointed out, China is using us the way we used to use "third-world" countries.

[Rosemary2205]

23. OMG

You just gave me a jolt.

[BeHereNow]

36. Courtesy of the Clintons.

Nafta
WTO
etc...
All courtesy of the Clintons.
Not to mention all the Halliburton
contracts Bill gave Cheney.
BHN

[Hannah Bell]

42. Don't forget, though...

1/3 of mfg in China (last time I checked) is foreign direct investment.

To some extent, it's US corps who are profiting.

[Junkdrawer]

24. In the not-too-distant future, I'm sure Chinese industrialists...

will build factories here to exploit that "cheap American labor".

[TahitiNut]

16. More dollars exported than products.

The world is awash in dollars ... the "prommisary notes" we give them for their cheap goods and oil. The ONLY "value" of any currency is what it can buy in the country that issues it - and that AIN'T gold anymore.

Once upon a time, BN (Before Nixon), we promised to sell a certain weight in gold for our currency. Essentially, that's what we told the world it could "BUY" from us for one of our dollars. No more.

Inflation has always been defined as "too many dollars chasing too few goods." Well, when we cheapen the dollar by sending LOTS of them to China (for example) for products that even China regards as less than worthless (i.e they're TOXIC) then the only value they have to China is (eventually) what can be bought in the US. Even if China can "buy" something from Japan using dollars, it's based on what Japan can get from us.

Too many dollars chasing too few goods.

Remember ... when the price (in dollars) goes up then the value of the dollar is less. Right now, it takes TWICE AS MANY dollars to buy an ounce of gold than it did just a few years ago. That's because there are more dollars than ounces of gold.

[Rosemary2205]

21. I beginning to get the picture.

We outsourced everything because labor was cheaper in China, so now the chinese factories own the value of all the goods imported into this country, and in the meantime we are consuming faster than we are producing, so the debt the chinese factories gets bigger, our ability to pay gets smaller, and our credit is now so bad that the chinese don't really want to be our creditor anymore and be left holding the bag, so they put the debt up for sale to someone else. A bunch of people putting our debts up for sale, and not many buyers.....

Is the answer to reopen US factories so we own our own debt?

[TahitiNut]

26. Well, if WE don't buy our own products, why should anyone else?

It really does boil down to that. We must always remember that ANY currency is merely a promissary note ... for goods or services produced by the country that issues the currency. In effect, the balance of trade reflects how WE value our OWN products and services. Obviously, every person that shops at Wal*Mart would rather send dollars to China in exchange for Chinese proudcts than send the products of their own labor to China in exchange for Chinese currency. Sure ... every one of those people will deny that and blame someone else, but that's really the bottom line.

That's the choice. As long as we import the products of other people's labors more than we export the products of our own labors, then our OWN CURRENCY (IOU's) will reflect the imbalance. That's how it works.


Now... in any SYSTEM (including the global monetary system) there are complexities that tend to obfuscate the basics. One of the complexities is the "Official Excange Rate" and the artificial difference created between the "purchasing power" of two currencies. Thus, we hear a LOT about how China creates an artificially low 'value' for its own currency by edict - i.e. by dictating an official (state-sanctioned) exchange rate between the Yuan and other currencies like the dollar. Such measures exacerbate inequities in trade relations, for sure ... but those perturbations are wiped out in the longer term.

Furthermore...
It should probably be recalled that the only nation with an intact production capacity at the end of WW2 was the U.S. All of Europe and most of Asia experienced vast devastation of whatever manufacturing capacity AND infrastructure (transport, power, etc.) they had. Thus, we were the industrial giant astride of the world and the dollar became king as a result. To a large degree, that was intentional. Capitalists did everything they could to shift their control to the US as they proceeded to wipe out (using the bombers they produced) that capacity elsewere. The American work force then attained a "middle class" existence ... but the Capitalists attained a degree of comparative wealth unmatched in all of history. Then there's the OIL. Even the war machine is addicted to OIL.

[Rosemary2205]

35. you know

I liked your posts already anyways but now that I know you are smart too -------

well :loveya: LOL

[Ediacara]

18. Debt, Budget deficits, and low interest rates

[enid602]

19. family finance

In a nutshell, it's kind of like when you conduct your own personal/family finances. Over a time, if you spend and spend and spend, but don't make enough to pay your bills, your credit report goes bad.

[Rex]

27. hyperinflation growth.

[Jamastiene]

30. Cause nobody's catchin' it.

:P

[roamer65]

33. There are two ways to pay for wars.

Higher taxes or currency debasement. Guess which route Bernanke and the Bush Crime Family are following...

[Angela Shelley]

40. Hi Rosemary2205, here´s an explanation for you.

Think about McDonalds as a corporation. You see their buildings, which are company owned, you see the well-dressed and smiling employees, you like the hamburgers, and when you go there, you are treated with respect. If you had money to invest in a corporation, and you knew that McDonalds would be expanding its chain, you might decide to buy STOCK from McDonalds, because you think they are doing a good job and you will get dividends each year.

Now think about Starbucks. Let´s say you know that they only rent space, you don´t like the way the employees are dressed, you think the coffee is good but overpriced, and when you go there, you feel like they aren´t interested in your business. If you had money to invest, and you knew that Starbucks needed the money to expand into other countries, you might decide not to buy STOCK from Starbucks, because you think they might be bankrupt next year.

Now make this comparison with the USA. When other countries buy dollars, they do so because they think that things are going well within the USA. At this time, the USA is spending so much money on the occupation of Iraq, that there´s not enough money for the infrastructure, education, health care, etc. Many foreigners are treated poorly when they enter the USA, and even the citizens of the USA are angry with the government. The USA is actually bankrupt, many households are surviving only through the mercy of revolving credit.

Would you buy STOCK in the USA?

Do you trust the US government to "turn things around"?

[The Inquisitive]

41. It's all your fault, and you know damn well why!

I'm in a good mood tonight and feel like being helpful!

[Demagitator]

44. Because....

the USA has no free and fair trade policies, that is why the dollar keeps falling. In order, for there to be free trade -- there has to be fair trade in a regulated market. As it is now; it is a secret market, that only benefits insiders -- that have knowledge of how the game is played, and who the players are. See Enron. Enron was just the tip of the iceberg.

[casus belli]

45. Because it has no legs? I love puzzles. What do I win? n/t