The Downward Dollar

What effect does the value of the dollar have on my personal finances?

Well, the value of the dollar against foreign currencies has a big impact on your personal finances. We import a huge amount of stuff into this country and if the value of the dollar goes down, then that means that we're importing inflation, in effect, from these foreign countries. The dollar has been falling very sharply and probably will continue to fall, because the U.S. budget and trade deficits, meaning we're putting a lot of dollars out there in the world. Also, if you travel overseas, if you go to Europe or you go to Canada or you go to Japan, you're going to see that the value of the dollar is worth less and less, making things very, very expensive there. On the other hand, if the U.S. dollar keeps falling, it means that America is cheap compared to the rest of the world, so we have a lot of foreign visitors coming here and a lot of foreign companies buying American companies, because if they have strong Euros or strong Canadian Dollars or strong Yen, they can get a lot more for their money buying things here. So, that's one of the direct impacts of the weak U.S. dollar on you, as a consumer.

Is the dollar going to collapse?

I think the dollar is going to continue to go down in value against foreign currencies. Our interest rates in general have been going lower, because they are trying to stimulate the domestic economy, whereas interest rates overseas generally are rising because they are having more economic growth and more worries about inflation. So, one of the things that affects the value of the dollar, is when the interest rates are being paid, and if our rates are going down while other rates are going up, that means their currency is more attractive compared to ours. So, the dollar has already fallen dramatically, and I think in fact that it will continue to fall. Now the way to play that as an investor is to have your money in foreign currencies, in Canadian dollars, in Euros, in Yen. So, as the U.S. dollar falls, the value of your money is actually appreciated. Another way to play that is gold. Gold tends to go up when the value of dollar goes down, because, the people lose faith in paper currency and they have much more faith in gold.

Why does the Federal Reserve continue to print money?

Well, the Federal Reserve prints money because it is supporting the economy. Now sometimes it's printing physical money, in bills, but in many cases, it makes up money electronically. It doesn't have to print millions of dollars in bills, it'll do billions of dollars. When the economy gets weak, they will literally put billions of dollars into the economy on an electronic basis. One of the reasons the dollar has been falling in value against other currencies is we've been putting a lot of dollars out there electronically and kind of flooding the market with them. That means the value of them goes down. So that's why the Federal Reserve keeps printing money is to support the deficits we have, both trade deficits and budget deficits as well as the operation of American consumers. We have something like ten trillion dollars in consumer debt in this country, and we don't want that to implode, so the government keeps putting money out to support the entire economy.

Is there enough money in circulation to pay off the national debt?

Some people ask me, "Are we ever going to pay off the National Debt?", and the answer is no! It's currently about 9 trillion dollars. There's not enough currency out there to pay it off. Basically, when the government has treasury bonds or treasury bills that come due, they roll them over. They just issue more treasury bonds and treasury bills to pay off the old ones. So we never really pay it off. We just keep adding to it. Now there is something called the national debt ceiling, which is set by Congress every year, and currently it's about 9 trillion dollars. In order to raise that, Congress has to pass a law saying it's now 10 trillion dollars or whatever the new number is. There's always a lot of political wrangling about whether we should do it or not, but they always have to do it. You have to fund the government. The government is the only organization that can actually print the money that it uses to run its operations. General Motors or Exxon can't make GM or Exxon dollars, so they actually have to live within their budget. The U.S. government doesn't. It can just continue to create the money it needs to run its operations, and that's why the national debt is now 9 trillion plus dollars.

Is the volatile stock market a result of the plunging dollar?

Well, the stock market is volatile and one of the effects of it is the dollar. When the US dollar falls in value, that means that US stocks are more attractive to foreigners to buy because they can get more stocks for their strong Yen and Canadian dollars and Euros. In general, if you have a very weak currency, that can be negative for your economy and stock market. An extreme example, you had hyper inflation in Argentina, Brazil or Russia, the whole country can implode. Now we are nothing near that, but a weak dollar is generally not good for your stock market. It also means your assists are being sold left and right. Our technologies companies, our food companies, our banks are being bought by foreigners around the world because they have these strong currencies and if our stock prices is relatively weak it makes it easy to buy up these kinds of companies and will continue to do so.