The US Dollar - IN TROUBLE! **IMPORTANT**

[Cecropia]

In 5 days the dollar has dropped more than a full point.  The drop is accelerating...  Everyone is calling for Ben Bernanke to ease the current economic pain by cutting interest rates on the 18th.  If he cuts them at all, more foreign investors will flee from the dollar. Eventually the foreign investors will give up all hope of the dollar rebounding and will sell off their holdings en masse. This is important for everyone in this country!  Devalued dollars mean more inflation - which means YOU will pay more and more dollars for the same goods and services you buy today.

Just so you know, this guy swears a bit.  Video 1 from midday today, video 2 from this evening.

[stefanierios]

Sep. 13, 2007 at 2:38 PM

Like most Americans, I don't really understand inflation and deflation too much.  I took an economics course in college this past spring, and it was the hardest class I had.  I got my one and only C of my college career in economics.

Does this mean a recession/depression possibility?

[Cecropia]

Sep. 18, 2007 at 11:07 AM

Some people define inflation as "strange and mysterious things that work in strange mysterious ways" which raise prices while money holds the same value.  Others (like Webster) define it as "a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services."  The latter is the definition I agree with :-D The higher supply of money and credit =  the more dollars in the money supply to buy the same amount of goods = the higher prices will go = one dollar holds less and less value.  In the same vein, deflation is a contraction in the money/credit supply = less dollars chasing the same goods = prices go down and dollars hold more value.  We are at unprecedented levels of money and credit creation in this country.  You do know that the Senate is in the process of approving our national debt limit to $9.82 trillion, right?  That new trillion dollars comes piping hot from the Fed's printing presses, made out of thin air.

I'll write a journal on the Federal Reserve one of these days and expand on this... 

A recession is coming.  No doubt about it.  It might take a couple more months to fully materialize though.

The most interesting part about these videos (to me) is that real interest rates are inversely correlated to the dollar's decline.  The dollar drops two-tenths of a percent and the bond market increases two percent.  That increase affects credit card, auto loan, mortgage interest rates.  Why?  The companies making those loans want to make a certain value in interest.  When the USDX (dollar index) loses value they need to amass more dollars to make their bottom line - hence the interest rates increase.

The dollar has taken a little bounce since these videos were posted but it remains to be seen whether or not it will stabilize.   The long term trend says no...

(Original Poster)

[Cecropia]

Sep. 18, 2007 at 2:53 PM

Look at this.  Bernanke just announced an interest rate cut of 50 basis points.  The dollar has fallen off a cliff.

Ugh.

http://quotes.ino.com/chart/?s=NYBOT_DX&v=s 

(Original Poster)