View Full Version : why is the value of the dollar going down?

04-26-2005, 01:33 PM
yeah that's the question.

04-26-2005, 02:49 PM
Relative to what?

04-26-2005, 08:58 PM
Supply and Demand
The value of the dollar has been going down relative to foreign currencies such as the Euro and relative to gold, for several years. This will probably continue for several years to come, making strong foreign currencies, gold and commodities attractive investments.
As to the weakness vs gold, gold had peak near $800 per ounce in the 1979,1980 runup associated with the economic turmoil in the US at that time. Gold bottomed under $300 per ounce and had become undervalued. Gold's low occured in the general timeframe when everyone was interested in investing in the stock market. Interest in stocks have waned and interest in gold has gone up a bit.
The big underlying reason on the supply side though is the creation of money in the US. The more physical printed dollars there are vs Euros, the less the dollar is worth. The money supply as measured by M2 or M3 has gone up in recent years. Also, the expansion of credit has been accelerated in the US in recent years. Interest rates control this. It is very easy to qualify for a home mortgage now for example. And low interest rates are not attractive to foreign investors. I can make 2% on a US CD or 5% with an Australian dollar CD, for example.
The reason why the Fed is printing money and expanding credit rapidly is I think for a couple of reasons. One is that if you are in debt like the federal government is, the easiest way out is to devalue the currency and pay off the debt or continue spending with cheaper dollars. We need money for Federal spending primarily for huge social programs and as a recent smaller, but significant figure - the war.
Also for the housing/stock markets -- Would you rather have the value of your holding go to 1/2 the dollar amount or just keep the same value of a holding and have twice as many dollars out there ? I doubt the Feds will hammer the dollar quick though - they don't want a panic. Gradual devaluation is the way they may go - for however long they can manage it.
Well thats my 4 cents worth. I used to offer only 2 cents for such an opinion, but I'm really not offering more, just keeping up with the money supply.

Ray Zee
04-28-2005, 03:22 AM
good work chips.
except that golds ultimate value is based on its extraction costs. and what the new demand will be from india and china as the peasants gain buying power as they love having gold.