National Public Radio is reporting that the Dollar has fallen, and foreign banks are increasingly keeping Euros and, of all currencies, the Yen as their reserve denomination. The Dollar has fallen 12% from its recent peak, and appears likely to lose additional value.
In March 2008, before the financial crisis, the dollar was at historic lows against a basket of currencies. Then, when the financial storm struck, the dollar strengthened as investors rushed to the safety of U.S. Treasury securities.
Now that the worst of the crisis appears to have passed, the dollar is under pressure again. It’s down more than 12 percent from its recent peak. Fred Bergsten of the Peterson Institute for International Economics says sentiment about the dollar has now turned negative.
While this is alarming to many, to some it is no surprise. In fact, many economists predicted after the Bush Administration’s Troubled Asset Relief Program (TARP) and the Obama Administration’s Stimulus bill, the hundreds of billions of extra Dollars being dumped onto and the mounting deficits of the United States Government would depress the Dollar significantly when compared to other currencies.
The result: Americans are poorer now than they have been, compared to the rest of the world. Since the Dollar has lost value, it takes ever more Dollars to buy products from other nations. Fears of more and greater deficits in the coming years create even greater distrust of the Dollar, resulting in more hedging with other currencies. It is a wicked spiral that can only be broken by more responsible actions by our government.
The United States must come back to reality: We can no longer spend like bachelors on a weekend in Las Vegas, signing for ever greater lines of credit to cover our losses. The International Casino is rapidly approaching the point where it will call in our debts, while we have blown our chips at the craps table. Read the rest of this entry »
Filed under: economics, Government, politics, poverty, wealth, bailout, CARS, cash for clunkers, currency, euro, exchange rate, foreign bank, inflation, TARP, treasury, weakened dollar, yen