View Mobile Site

Declining dollar hits home

    I love economics. I love talking economics. Everything the government does can be reduced to economics.
    One of the things that has concerned me lately is the continuing slide of the dollar compared to other world currencies.
    Surprisingly, I've had a number of educated people (I hesitate to say smart) say dollar devaluation won’t impact them domestically.
    Really?
    Before I debunk that idea, let's start with this supposition — the recent increase in oil prices will put downward pressure on the economy. Higher fuel prices raises business costs for transportation companies, which increases the cost of most goods. Getting back and forth to work for the average Joe is also more expensive.
    So, I think we can agree rising fuel prices is bad for the economy.
    But is the falling dollar bad for the economy? (Warning: math ahead)
    It does make the price of our goods cheaper in the global marketplace, increasing our ability to export goods. But the unintended consequence is that the things we do import get more expensive. So, the falling dollar helps exporters and the makers of exported goods, while the increased price of imports – everything from cars to olive oil – hits everyone.
    But how does that relate to the price of oil?
    On Jan. 17, 2007, oil was about $52 per barrel. On Nov. 21, it was at $99.29. According to the Defense Energy Support Center, a group that provides government agencies with energy information, without the devaluation of the dollar over this time period, the price per barrel would have been $86.69 — a 14.5 percent difference over that 11-month period.
    I recently paid $3.11 for a gallon of gas. A 14.5 percent decrease in price and that same gallon of gas is only $2.66.
    A 45 cent difference just from the devaluation in 2007.    
    Looking from 2001 to today, the dollar has depreciated almost 40 percent. It continues to hit all-time lows. Again, presuming the decreased value of the dollar directly correlates into higher oil and gas prices, without the devaluation, we’d be paying about $1.87 for gas.
     C'mon, we'd all feel better at that price, right?
    Now, I’ve used the Euro as comparison here, but the same trends can be seen with the Japanese Yen and British Pound.
    Is it true that worldwide demand drove up the price of oil in all currencies? Yep. But over the same period from 2004 – 2007, oil prices in pounds and Euros doubled while they have tripled in U.S. dollars.
    I’ll be fair. There are other factors contributing to rising oil prices. Conflict in the Middle East is one. Crazy South American dictators is another. Increased demand in the Far East is another.
    So, why is the dollar devaluating? It's the perceived value of the dollar because we keep printing dollars.
    Think of American dollars like stamps – the more of them there are, the less value each one has. Remember that 1918 stamp with the upside-down airplane printed on it? Only 100 made it into circulation. One recently fetched a $525,000 price. Compare that to the mass-produced 41 cent stamp.
    The same holds true for other assets. That picture of dogs playing poker is not worth much while Monet’s “Water lilies” is worth millions.
    Now, the U.S. is not actually printing physical dollars and distributing them. But we continue to run a federal deficit and sell Treasury bills to pay for that deficit. America’s got one big credit card with over $9 trillion on it and our annual deficit runs in the hundreds of millions. This means the Treasury Department has to borrow money to meet Congress's appropriations (spending).
    Heck, we pay over $400 billion in annual interest payments alone.
    So, the government’s not printing physical dollars but increasing the money supply nonetheless. This causes inflation and devalues the dollar.
    We’re slowly seeing the effect on our local pocket books. Gas over three dollars, milk over four dollars. Prices of vegetables and fruits higher than seasonal averages. I’ve even noticed the price of pasta going up.
    All traced to a devalued dollar.
    I find it funny that individuals are encouraged to get out of debt. Get out from under those credit cards, minimize mortgage debt and pay off that car. It puts more money in your pocket and less money goes to interest. It seems a sensible policy for a single household, why not a sensible policy for all the households put together – you know – our country.
    If we are indeed the government, we need to live within our means before we no longer have the means to do so.

      

Interested in viewing premium content?

A subscription is required before viewing this article and other premium content.

Already a registered member and have a subscription?

If you have already purchased a subscription, please log in to view the full article.

Are you registered, but do not have a subscription?

If you are a registed user and would like to purchase a subscription, log in to view a list of available subscriptions.

Interested in becoming a registered member and purchasing a subscription?

Join our community today by registering for a FREE account. Once you have registered for a FREE account, click SUBSCRIBE NOW to purchase access to premium content.

Membership Benefits

  • Instant access to creating Blogs, Photo Albums, and Event listings.
  • Email alerts with the latest news.
  • Access to commenting on articles.

Please wait ...