What's Behind the Dollar's Decline?

by: John Mason March 16, 2008 | about stocks: FXE / UDN    

John M. Mason

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There is continual talk that, if not in the short run, at least in the longer run, foreign central banks, especially the European Central Bank, should cut interest rates. My question right now is “Why should they?” They have played by the rules, and the United States hasn’t.

For the past seven years, the United States government has gone it alone - in foreign policy - and in economic policy. It is not in the interest of other central banks to ease up on the disciplined monetary policy they have worked so hard to establish. There is also some resentment they must get over caused by the ‘go-it-alone’ policies of the United States.

Since 2001 the value of the dollar has declined against the Euro by more than 7% per year. This certainly should have been a signal to the U.S. that the rest of the world thought something was wrong with its economic policy. But, the Bush Administration did nothing about it. Now, the chips associated with globalization and the absence of an energy policy are coming home. The rest of the world is strong enough economically and financially that the United States can no longer act independently.

The current activity is exactly why world markets react against the monetary and fiscal policies of a country that are not sound and disciplined, and sell that country’s currency. Sooner or later that country is going to have to monetize more and more of its outstanding debt. That is what the Bush Administration is now doing. No wonder the value of the dollar continues to decline, and the price of gold rises along with the price of oil. The United States is paying for its lack of discipline. However, the rest of the world is also concerned about the price it will pay for the past behavior of the United States.

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This article has 7 comments:

  •  
    Mar 16 11:51 AM
    This administration is so disconnected from the world and the public that it is crazy that congress would not consider amending the constitution to hold early presidential elections. The U.S. congress needs to do something drastic to let the world and the people of the U.S. know that our elected leaders in America and around the world are not going to sit back and watch while this American ship is looted and crashed. The United States has been moving backwards under Bush leadership.
    Reply | Link to Comment
  •  
    Mar 16 01:15 PM
    We have a 700 billion dollar trade deficit. Why are so many people looking for the reason the dollar is falling? We have traded ourselves to national ruin.
    Reply | Link to Comment
  •  
    Mar 16 06:11 PM
    Bush has been terrible for the world and history is forever altered for the worse. It's a pity he doesn't care enough to give a damn.

    Do you think this might have something to do with an elitist, divisive, and 'divinely inspired' administration focused on taking care of the interests of the wealthy and powerful, whatever nationality they are?
    Reply | Link to Comment
  •  
    Mar 16 08:01 PM
    love the straight-forward analysis!
    Reply | Link to Comment
  •  
    Mar 17 12:31 AM
    I can not believe these so called economists still trying to do all of analysis of dollar fall.

    When a country is bankrupted and keeps printing worthless paper money to fund its deficits and spending, its paper money falls. You don't need any education to know that.
    Reply | Link to Comment
  •  
    Mar 17 12:03 PM
    The Wall Street controls America political and economic life. Its goal was/is to enrich themselves.

    It could not go for ever. Our economy is facing ruins.

    And our media still feed us lies of a "potential recession"...
    Reply | Link to Comment
  •  
    Mar 17 01:27 PM
    Most of you seemed to fallen for the "blame the current president" story. While the man behind the curtain (Federal Reserve) pulls the strings. Keep the people bickering and they won't pay attention to the real problem. We stopped being a sovereign Republic in 1913, when the Fed took over. We pay interest on paper that our government should be printing. The system is designed for perpetual debt. Do you really think it matters whom we elect? They all play by the Fed rules.

    The president doesn't control the economy, all he can do is get out of the way. Congress has more control over our problems with spending. By the way it takes more than Congress to amend the Constitution, all the states have to vote on it.

    The American people are the ones to blame, for our ignorance. We have an entitlement mentality...give me welfare, health care, housing, food etc. and I have to everything now. They have swallowed the line about "always" living with debt, so go out and borrow more. You can live within your means, get out of debt.
    Reply | Link to Comment
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