 The Beloved Dollar Should our children be proud that theirs is the
largest creditor nation on Earth, while earning a hard currency with
continually rising international buying power - - as it was when we
were their age? Or, be proud of today's reality > > being
the largest debtor nation on earth and earning a weak currancy, with a
long-term erosion in international buying power. Based on exploding
trade deficits and debts, is the US dollar threatened to repeat past
long-term declines? And looking forward, does the new European currency
(the EURO), issued in Jan. 2002, pose a future threat to the dollar,
and therefore to relative U.S. living standards and national security?
Does the Yen also threaten, considering Japan's positive trade
balances and strong internal savings vs. horrendous negative
balances in the U.S.?
 The left chart, one of many in the
full report linked below, shows the dramatic
negative trends of the U.S dollar vs. currencies of several
industrial trading
partners - - a drop up to 72% in the dollar's
international power - past 39 years.
During these 39 years
Americans became more consumptive spending-addicted, more
debt-dependent and less savings-oriented and manufacturing-based than
ever before in
history. Major trade imbalances resulted, causing the international
value of our currency
to decline dramatically over the period. The end of this
down-trend is not in
sight.
Many times during this period U.S. government officials allowed (even
encouraged)
actions helping cause this situation, believing a weak dollar would
turn trade deficits
into surpluses by boosting exports. They were actually engaged in
competitive devaluation
of the currency we pay our workers. They were wrong: exports languished
and imports
soared, and negative trade balances exploded as the U.S. manufacturing
base faltered.
De-valuing the dollar alone does not resolve negative trade balances,
as proven by
history.
Looking for a way out from collapsing trade balances, starting in 1997
Treasury
officials voiced (vocal, only) support for a strong dollar and played a
public relations
game touting the US was in a 'New Era', which, together with
uncertainty concerning
changes in the European Union and its new currency (the Euro) and Asian
currencies, helped
the dollar recover a slight bit from years of decline (see chart). But
history proves that
just a couple years upside does not assure future strength and buying
power stability,
unless negative trade balances are reversed. The chart for 2002
indicates the recent
uptick was but temprorary.
In fact, past depreciation of the dollar actuallly resulted in larger
negative trade
balances. The dollar's slight up-tick in 1997-2001 occured despite U.S.
trade deficits
soaring to new all-time unsustainable records each year - - as shown in
the International
Trade Report graphics -
- and despite soaring ratios of private
sector debt of the
household, business and financial sectors which encouraged
over-consumption of inports
instead of internal savings and production.
Note the dollar's 2001-2007 down-tick vs. the Yen and Swiss Franc, and
the
strengthening of the Euro after its official launch January 2002. Is
this the start of
a renewed slide of the dollar's buying power - - returning to
the past long-term
downward trend shown in the chart, plus perhaps threatening the prior
dominance of its
world reserve status? Note, also, the more recent decline indicates an
even sharper
reduction in the dollar's value - - and gives every appearance (per
this chart) of
resuming its long-term decline.
Warning:
In its August 2001 annual assessment of the world's largest economy,
the International
Monetary Fund (IMF) said "the yawning current account deficit raised
the risk of a
sharp depreciation in the U.S. currency." The warning was
again issued in early
2007.
What Happened in 2002 to 2007?
Answer: a sharp depreciation of the U.S. currency.
The US dollar
declined 53.1% vs. the Euro during
2001-2007, and also down against many others incl. 31.7% vs. the
Canadian dollar.
Regardless of the impact of U.S. stock, bond, real
estate or commodity
markets in the end most Americans think of their assets in
terms of dollars,
yet few recognize that a huge
international depreciation (write-down) of
those assets is again in progress - - and there is little most
know what to do
to protect themselves. Just think, for every 100
thousand dollars of a citizen's
assets the international buying power dropped
$53,000 since 2001 vs. the
Euro. Not only does
that wipe-out incentive for foreigners to invest
in dollar assets to help finance America's savings-short,
deficit economy, it
negatively impacts the store of value of U.S. citizen savings and
effectively casues a
huge decrease in the international value of U.S. wages.
In the past several years many average citizens experienced
large
decreases in the dollar value of their stock market assets,
due to huge market
declines of a bubble economy that was pumped-up by soaring debt and
erroneous
claims. Many more conservative citizens, who stayed
away from the market
pounding to protect their savings, at least
came out with their assets in
tack but were later horrified to witness interest
earnings on their
assets chopped 60%+ during 2001-2004 as the Federal Reserve,
trying to promote even
more debt in the debt-laden economy, forced interest rates to record
low levels. On top of
this comes the huge depreciation of all dollar assets in terms
of its
international-value, as the dollar dramatically falls.
And Now, What Happened in 2006-07
Answer: another sharp depreciation of the U.S. currency.
Click
this chart for most current data plots -
chart source >
http://quotes.ino.com/chart/?s=NYBOT_DX&v=d12
All of this
leaves the too few US savers (incl. a lot of
seniors) vulnerable and devastated, wondering who represents them
and why are
powers-to-be making war on savers instead of on debtors.
The International
Trade Report shows many data graphics that
help tell the trade story, as
America's trade deficits soared to even higher records. In the
12-months to February
2006 the U.S. had a total merchandise trade deficit
of $789 billion,
while Japan & Germany produced a
cumulative trade surplus
of $283 billion ($86+$196). That's
a whopping $1.07 trillion
worse relative trade performance for the U.S.,
in JUST ONE YEAR - - and
that's just against 2 nations, and its not counting the huge
additional deficits vs.
China.
The long-term performance
of our currency is our fault (negative trade balances driven
by massive internal debts). It should be unacceptable
to pass to our young an economy which not only
provides stagnant earning power and a difficult living standard in
dollars, but a currency
with a continued history of devaluation in its international store of
value, against
children of other major developed nations. Several generations ago, the
U.S. dollar was king, and the one who earned dollars felt
like a king when he traveled.
No longer!
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