What are the reasons the U.S. dollar is declining? Will it hurt or help the U.S. economy? Is it enough to cause a complete collapse of the dollar, as many are warning? Most importantly, what can you do to protect your financial well-being?
The dollar declines when it loses value in relationship to foreign currencies. When this happens, the dollar can buy fewer foreign goods, increasing the price for imports and causing inflation. In addition, investors in U.S. Treasury bonds will sell their dollar-denominated holdings.
FATCA (the Foreign Account Tax Compliance Act) will require foreign banks and other financial institutions to disclose information about income and assets held by U.S. customers. Its goals is to root out wealthy U.S. taxpayers that are deliberately hiding money offshore. It also want to stop foreign banks who are using tax evasion as a profitable line of business. Many are worried that foreign banks will drop U.S. customers, to avoid compliance, thereby pushing them away from dollar-denominated assets.
The value of the dollar today is less than it was in the past. When the dollar loses value, that’s called inflation. That’s because prices seem inflated as each dollar is able to buy less and less.
How much lower is today’s dollar value? In 1913 you could buy as much with a dollar as you can with $23.63 in 2014, more than 100 years later. By 1920, the dollar had lost about half its value, and was worth $11.48 in today’s value. Deflation (the opposite of inflation) during the Great Depression of 1929 increased the value of the dollar to $13.43. By 1940, the dollar was worth even more — it could buy as much as $16.40 could today.
Why Is the Value of the Dollar Lower Today?
To some extent, inflation is the necessary cost of an expanding economy. The Fed keeps interest rates low to stimulate spending, which drives demand and ultimately economic growth. In fact, the Fed targets a 2% core inflation rate. In other words, as long as prices (excluding volatile food and energy) only goes up 2% a year, the economy will grow at a healthy rate.
Of course, this is just fine as long as your income also increases more than 2% a year. If not, then inflation will eat away at your standard of living. For many Americans, that is exactly what has happened. That’s because income inequality has increased. Between 2000-2006, average wages remained flat despite an increase of worker productivity of 15%. In those six years, corporate profits increased 13% per year. And that was before the recession!
Many people are looking for ways to make ends meet in todays world.
“Only A New Gold Standard Will Save The U.S. Dollar” – Steve Forbes
He said to stop the decline in the U.S. dollar it only makes sense to link it to gold.
Forbes said different currency valuation methods have been tried for “more than 4,000 year,” and experience shows that having a gold standard is the way to go. He added a gold standard “done right” provides stability and value when it comes to money supply.
Forbes said that it is only a matter of time before the U.S. economy reverts back to a gold standard, it will take a dramatic shift to bring the change about because a big government prefers a weaker U.S. dollar. However, he sees some big changes on the horizon.
“A weak currency always means a stronger government and a weaker private sector,” he said. “I think people are looking forward to the elections. I think there are going to be some very big changes in our mid-term elections in November and that is going to set the stage for some very interesting showdowns in 2015.”
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