Tell me about it. In 2002, one US dollar could buy 1.13 Euros. Now it takes $1.30 to buy 1 Euro. Check out the performance of the dollar against only one currency (the Euro) during W's reign:
http://www.x-rates.com/d/USD/EUR/hist2000.html http://www.x-rates.com/d/USD/EUR/hist2001.html http://www.x-rates.com/d/USD/EUR/hist2002.html http://www.x-rates.com/d/USD/EUR/hist2003.html http://www.x-rates.com/d/USD/EUR/hist2004.html http://www.x-rates.com/d/USD/EUR/hist2005.html http://www.x-rates.com/d/USD/EUR/hist2006.html I keep no money in dollars; to do so would be folly. --- In FairfieldLife@yahoogroups.com, "claudiouk" <[EMAIL PROTECTED]> wrote: > > http://news.bbc.co.uk/1/hi/business/4772049.stm > > Why the dollar is falling so fast > Analysis > By Steve Schifferes > Economics reporter, BBC News > > The US dollar is plunging in world currency markets - and bringing > down share prices in its wake. > But why is the dollar under pressure - and what would be the > consequences for the US economy if it continues to fall? > > Behind the problems of the dollar lies the huge and growing US trade > deficit, and the large Federal budget deficit. > > A fall in the greenback could hit Asian countries whose governments > hold huge foreign currency reserves in dollars > > A disorderly unwinding of global imbalances would be very damaging > Rodrigo Rato, IMF Managing Director > > For many years financial markets have worried about the growing size > of the US trade deficit - the difference between the amount the US > imports from the rest of the world, and the amount it can sell to the > rest of the world. > > That deficit is now heading above $800bn for 2006, or 7% of the US > economy, and shows no signs of diminishing. > > At the same time, tax cuts and the war in Iraq have led to a US > budget deficit of several hundred billion dollars despite the booming > economy. > > Asian giants > > Much of the trade gap relates to US commerce with East Asian > countries such as China, Japan, and Korea, who sell much more to > America than they buy. > > Together, the East Asian countries have accumulated foreign currency > surpluses of nearly $1 trillion, much of it held in US Treasury bonds > denominated in dollars. > > Thus they are funding both the budget gap and the trade gap. > > These huge global imbalances are threatening to derail the world > economy, the IMF and other international organisations have warned. > > The classic economic view of how to correct such changes is to adjust > the exchange rate in order to make US goods cheaper and Asian goods > more expensive. > > But many Asian currencies - especially the Chinese yuan - do not > float freely on international currency markets, and the US has long > been pressuring China to revalue its currency. > > Now the markets are beginning to take matters into their own hands, > by forcing the US dollar down. > > In the long run, the fall in the dollar could lead to a cut in the > trade deficit and a boost to US exports. > > But this process often takes a long time, and in the meantime, it is > fraught with dangers. > > The fall in the dollar is worrying the IMF, the international > organisation charged with surveillance of the world economy. > > "A disorderly unwinding of global imbalances would be very damaging," > IMF managing director Rodrigo Rato warned at its spring meeting in > April. > > Run on the dollar > > In the first place, a rapid fall in the dollar, if it accelerates, > could cause short-term problems for the US economy. > > The higher price of imported goods could lead to a hike in domestic > inflation, and it could take several years before consumers switch > back to buying more US goods. > > High inflation, combined with the stronger-than-expected growth of > the US economy, could force the US central bank, the Federal Reserve, > to keep raising interest rates. > > They have already been raised 15 times, and now stand at 5%, partly > on fears of a growing housing boom. > > But the fears of inflation are also likely to affect the interest > rates on long-term bonds, which determine mortgage rates. > > The rising mortgage rates, while they may eventually dampen the > housing boom, will also give a further boost to inflationary > pressures. > > International exporters hit > > Meanwhile, foreign companies who have derived an increasing > proportion of their sales and profits from the US market could also > be hit by falling demand for their exports. > > The sharp falls in non-US stock markets, especially in Asia, are a > response to this fear, with electronics and car companies like Toyota > and Sony especially vulnerable. > > And that in turn could affect the growth rate of countries like > China, who derive much of the growth in their economies from exports. > > But the Asian exporters also have another reason to feel vulnerable. > > As the value of the dollar falls, their reserves of the currency also > reduce in value, as do the yields on the US Treasury bonds held by > many of their central banks. > > In buying such bonds these governments are, in effect, underwriting > the large US Federal budget deficit as well. > > This deficit is set to increase as the baby boomer generation faces > retirement. > > The Asian governments and investors may be tempted to sell many of > their dollar holdings in order to protect themselves - but this would > have the effect of weakening the dollar further. > > And it would force the Fed to raise interest rates even more to > protect the dollar. > > Countries like China are reluctant to massively revalue their > currency - because it would make investing in China much more > expensive and could deter valuable foreign investment. > > Managed float > > This problem with the dollar has happened before, in the 1980s, when > it was Japan rather than China that was seen as the main threat. > > At that time, the main industrialised countries worked together for a > managed currency float in an agreement called the Plaza Accord. > > The coordinated approach led to a managed decline in the value of the > dollar, which then stabilised at a more sustainable level, supported > by central banks. > > However, the current US administration does not favour such an > approach, believing that the markets should be left to their own > devices. > > And given the vast size of foreign currency markets today, it is > doubtful that central banks could make such an effective intervention > again. > > The downside for the US in the 1980s was that it was forced to enter > into an international agreement with other governments that reduced > its freedom to set its own domestic policy. > > But in the absence of such an agreement, it looks like the markets > themselves are finally deciding that the US 'twin deficits' are no > longer sustainable. > > And when the world's largest economy begins to look shaky, it is not > surprising that confidence among financial markets is weakened around > the world. > > > Story from BBC NEWS: > http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4772049.stm > > Published: 2006/05/15 22:27:04 GMT > > © BBC MMVI >
