US Dollars Defining Momement
How the Decline in the Dollar Affects You
Foreign Exchange Markets
Thursday, March 3, 2011
Something is happening with the US Dollar and the rest of the world knows about it. The secret is out.
The US dollar has reached a defining moment. Let's look at the chart below. It is a daily graph of the US Dollar.
The lower blue trend line is what is significant here. Technical Analyasis defines this trend line as "support" where buyers should
come into the market. However, the rules of Technical Analysis also say if this "support" line is broken (usually) it would signal sellers
coming into the market. As you can clearly see, the US dollar has met that lower trend line as of today; therefore, it is a defining moment if
the dollar will rally or sell off dramatically from here.
For those of you familiar with the Elliot Wave Principal, you may recognize what the significance of the upper trend line is. However,
this is out of the scope of this article.
What a Declining Dollar Means
This is a very complex phenomenon to explain; however, I am going to keep it as simple as possible. It is the big macro picture that
is important. The bottom line is the purchasing power of the currency is being eroded. How much it affects us individually depends on lifestyle,
and what we purchase everyday, or most frequently, and travel.
Macro or Big Picture
Generally, everything we import becomes more expensive, and everything we export becomes less expensive. However, our economies shift to
services rather than manufacturing cannibalizes the benefits of this currency differential. This is also a main contributing factor
to why the USA trade deficit hasn't narrowed in the last decade or so. The theory that a weak currency increases exports is looking
less credible with every downtick in the US Dollar.
Lifestlye and Purchases
If you have a lifestyle similar to the Amish, who are more self sufficient and less dependent, currency volitily is generally going
to affect you less than a lifestyle of a much greater degree of dependency. The Amish are more insulated.
On the other hand, if your lifestyle includes more dependencies on imported goods, then currency volatility would have a greater impact.
For example, the consumption of more imported foods, imported fuel and imported vehicles would cost more money as the dollar decline continued.
It would take more and more US dollars to buy the same amount of goods.
Travel
If you traveled to Europe today, you would have to pay $1.3950 US to get $1.00 dollar back in Euros. In this example, the entire trip
just got marked up 40%! A $10,000 trip now costs $14,000. Of course, this only affects those that elect to travel.
This in return, goes back and cannibalizes lifestyle unless you have enough money where it doesn't matter. In other words, this currency
barrier keeps the average person in the USA container.
What Happens Next?
The last remaining insulation is the psychology, or confidence, in the currency. Keep in mind the US Dollar is fiat money and created out of thin air.
The only thing standing in the way of it becoming worthless is we have confidence in the currency. So does the store you spend it at. That is why they accept it.
So, what happens when confidence is lost in a currency? What triggers such a phenomenon? Basically, when the quantity of money drastically changes.
The sad reality is it is extremely difficult to predict when some overnight revelation occurs in the masses collective conscious making them believe
the money is not worth the paper it is printed on. If this occurs, the price of everything can rise and rise dramatically. This is where the chart at
the beginning of this article comes into play. The US Dollar is at a defining moment right now.
If that lower trend line is significantly violated, both the real purchasing power and the confidence will be in jeopardy.
How can this Happen?
The quantity of money has increased dramatically in recent years. Furthermore, the Federal Reserve Board, which is neither federal not has
any reserves, has been under a great deal of global scrutiny for its role in changing the quantity of money. With all the corruption and secrecy, it is hard
to say what has really happened. Bits and pieces of intelligence leak from time to time, but that is about the extent of it. For example, the Fed recently admitted it
made 20 trillion dollars in secret loans in the financial shock of 2008 and 2009.
20 trillion.
Between the Fed printing money and the banking systems fractional reserve lending practices, more and more money is being created out of thin air.
Fractional reserve lending simply means a bank can loan out many times what it has in reserves. This is very similar to printing it and beyond the scope of
this article but worth mentioning.
How do we Protect Ourslelves?
Become a Financial Police® Deputy,
stick together and collectively work for positive change in our elected offices. It is certainly better than
doing nothing.
William Bonofiglo
Director of the Financial Police®
March 3, 2010