The Tumbling Dollar – What You Need To Understand

The value of the dollar has been going down pretty consistently this decade. Many complain about the tumbling dollar, but don’t really understand why the government will do nothing. 

What is the value of something? It is both a simple and incredibly complex question. When it comes to currency, the value historically has been determined by what stands behind it. In this country, gold was the backing for the dollar. Then we decided to go off gold and simply state to the world that the value our currency was backed by the full might of the United States government. Put another way, nothing tangible backs it. 

This means we have a “fiat currency”. The value is based on nothing more than our promise to honor the currency in any transaction. While this may sound startling, it really is not. Nearly every major country does the same thing. Things get interesting, however, when investors and countries start playing with the perceived value. 

The dollar is dropping in value. There are many conspiracy theories as to why. The answer is simple. The federal government wants the value to drop. This is not a political issue. It is an economic one. The lower the value of a currency, the easier it is for producers in that country to export goods to other countries. 

Our current economic situation is not a good one. We are staggering out of the Great Recession in what is clearly becoming a jobless recovery. Tax revenues are way down and national debt is through the roof. The primary answer to all of these problems is to get the economy rolling again as quickly as possible. Another stimulus bill is out of the question, so we need to gain an advantage somehow. That “how” is to let the dollar drop in value so that our companies can export goods to Europe, Japan and so on with a currency advantage. 

There is currently a currency war underway. Everyone is placing pressure on China to let its currency appreciate. Meanwhile, the Japanese have jumped into the market to support the dollar [against the wishes of the U.S] so that the yen does not become so overvalued that Japanese companies simply can’t sell anything overseas. European countries are having major economic problems for a variety of reasons, one central one being the Euro is being valued much higher than the dollar. This gives U.S. companies a competitive advantage in trade with Europe. 

So, what does all this mean? Well, we have slowly been experiencing it for the past 100 years. A dollar doesn’t buy as much as it used to. The devaluation of the currency has been relatively slow up to now, but there are concerns that it could speed up. One needs only look at spiking gold, silver and copper prices to see as much. 

So, what should you do to protect yourself? Buying tangible things is certainly a smart move. Many are looking to precious metals, which is smart. Others prefer land and such. This is also a good move. Contact us today to learn more about your options.