The Demise Of The Dollar And What To Do About It

[randallscott35]

NOTE: This is a econ post so it if you aren't into that sort of thing, it's not for you.

If your wallet feels a little light lately, you aren't alone. Nope 300 million of us have a currency that is decreasing and will continue to decrease over the course of the next few years. The dollar has dropped roughly 36% over the past 8 years against the EURO. Mind you the Euro includes "powerhouses" like France where their economy sputters along and unemployment is at 10%.

So why is our money declining in value? Well the biggest reason is that Americans do nothing but spend and the big countries of the world finance our credit by buying dollars and trading with us. (In fact we have a -1% savings rate, the lowest in the world) Thus we run a current accounts deficit that is off the charts. Of course those of you with credit cards realize you can keep borrowing----until you can't anymore. That time is coming. The dollar is losing value b/c the realization among countries like China is that they need to diversify their holdings into other currencies and aren't buying them. Meanwhile the strong dollar policy that this country had for decades is gone as Bush became President.

What does it mean for you? For one it means asset inflation which is what you are seeing right now in the Stock Market. The DOW has been up 24 of the past 27 days as I write this. That hasn't been seen since 1927. Ring a bell. Then as in now the liquidity of the money supply some 18% worldwide compounded year over year has to go somewhere. For a while it was housing which is now puking its guts up. Now it is in asset prices....Secondly if you haven't noticed the prices you pay for foreign goods are going up and will continue to do so. So putting off that vacation to Europe isn't a bad idea.

So how can the FED reserve stop this? Easy by raising interest rates a lot and protecting the dollar. The problem is the economy is actually decreasing quarter over quarter and the housing market will get worse with a rate increase. So the FED is stuck....

What should you do. Well if inflation is going to get worse one of the main things you should do is lighten up on stock holdings for the foreseeable future. Contrary to the rah rah crowd on CNBC, they have a vested interest in seeing you fully invested...The best natural hedge against inflation is buying gold. Not easy to do but if you can buy the physical, 1 ounce Gold Eagles at 7 dollars over spot price(which currently is about 685$) you should do alright. Always buy in cash and find a safe place to store it...not in a safety deposit box.

OR--if you do want to invest in the market, buy mining companines which mine precious metals. Tickers AU and GOLD are my two faves right now.....OR if you want to buy into gold but can't store it, its easy. They have a Gold ETF(exchange traded fund) which tracks the spot gold price in NY. Ticker is GLD.

Either way, there are a bunch of bright people around here. Just realize what a declining dollar means and how its going to affect you. You'd think it was a great thing according to financial news b/c companies here selling overseas get a benefit.....But its a short lived benefit. And higher prices are on their way, from cars to the grocery store----just keep your eyes open. You will see it. Randall