The fall in value of the U.S. dollar
 

Great for us coming to you, but its got to be a nightmare for those of you visiting Europe and the U.K.
The price of are overall trip to California has dropped $220 since August!

As a tourist, it is an issue. But, and this had been discussed ad nasuem on the Europe board, the underlying fall in the dollar was driven by very low US interest rates, it helps US companies with competition against European companies, and on a relative historical basis these exchange rates aren't unheard of.

Perhaps Bush needs to balance our budget and improve the trade imbalance ... we can export more, sure, but how about all that oil we bring in for the SUVs. His idea to borrow to finance transition to private accounts will only add trillions to the national debt. If people lack confidence in the USA, then the dollar will drop further, say to $2 per pound, or perhaps $1.65 per euro. And who will purchase Treasury notes to finance our government? We can thank Bush for maiing this a rough and dangerous time for our economy. Consumer confidence went down again today, by the way.

Today's DMN quoted the two senior economists at Merrill Lynch: "household debt as a percentage of disposable income has hit 120%".
And, "consumers still devote 18 cents of every dollar to servicing this debt".
Sounds like the vast majority of consumers use the US Federal Government's GAAPs.
Look in the mirror my friends.
M

If you think Bush has any (a) ability or (b) interest in balancing the budget, you haven't been paying attention.

In terms of the dollars fall, issues related to currency exchanges are rarely a one-sided affair on issues related to the economy in Europe, play a part. There are some REALLY bad reasons, like the one's you mentioned, that have pushed the dollar to the 1.30ish level. But, the drop from the 2000 FX level to the 1.20/1.25 level, wasn't all because of weakness.

In terms of the dollar going to 1.65 versus the Euro, UBS is forecasting a 6-month target of about 1.35. You might recall a few weeks ago the leader of a German business organization called a fall to 1.50 "disasterous." The ECOFIN is as motivated to not let the dollar slip that far as most tourists are.

So, the U.S. corporations benefit from the devalued U.S. dollar while the American consumers go deeper and deeper in debt to buy the imported goods those coporations are selling at huge profits?

It stinks that my Euro vacation in June will now cost 20% more than it did two years ago!

It's certainly a nightmare for BA given their current fare sales for travel to Europe.
M

I think you're a little confused, Jayne. Corporations benefit because they are better able to sell US-made goods and services overseas. But, regardless of who is right, if the corporations truly are reaping huge benefits, the logical step for you and me is to buy stock in those corporations.

When I first went to Europe in 1970 you actually COULD do it on the famous "$5 a Day" and prices have risen ever since irrespective of the exchange rate.

Anyone who thinks a European vacation is going to somehow get cheaper over time is deluding themselves since the costs of most things tend to rise over time.

Ryan, you are so smart you scare me.
I am totally lost on such issues.

Allmoo... all I can say is come to the US and shop 'til you drop!

Tx, I was thinking the same thing.

Ryan, are you a professor or scientist or something along those lines? Bright gentleman you are.

Anyhoo, it sure stinks for us Americans and I am glad that Brits and others don't hate us enough to stop visiting:) Thanks for traveling to the US Allmoo:)

Thank you for the compliments. I'm not that bright. I just happen to have a wife who works for a major European financial institution and she IS that bright.

If I'm bright, it's because I married WAY, WAY out of my league!

BTW, in terms of the American consumer, inflation is fairly modest, apart from the rise in oil prices, which has nothing to do with the dollars fall. If our currency weakness was really impacting consumers, you'd see inflation as a far greater problem then it is. The fact is, we import for more consumer goods from China then we do the EU. The dollar versus the Yuan hasn't, to this point, presented an inflationary problem.

As I see it, financially we are in deep dodo,or is it doodoo.

We have these economic facts to contend with:

A federal budget that is full of red ink.
A rising national debt that is being funded with Treasury paper -- notes, bonds, bills.
Rising interest rates as the Fed tries to curb inflation.
A very negative international balance of payments -- that is we buy more than we sell.

Some facts to consider are these: Foreigners own more than $1.8 trillion, of the total debt of $7,533,000,000,000 as of Dec 1, 2004.

(Foreigners can and do buy US Treasury securities just like you and I can do, if we had any money!)

Consider these facts, too:

# Some 40 percent of American families annually spend more than they earn.
# About 60 percent of active credit card accounts are not paid off monthly.
# Average credit card debt among all American households is $8,400.
# The dollar has dropped more than 50% in value since the euro was first introduced.

People claim that the weak dollar will help exports. True, but manufacturing companies that must import raw materials are hurting because of the weak dollar.

In order to reverse in the near term the decline of the dollar versus most of the world's currencies, particularly the euro, three events must happen.

1. The national debt must be reduced. (Don't confuse that debt with the annual budget deficit, which needs reducing, too.)
2. Our negative balance of trade must be brought closer to zero. Turning it positive in the near term is not likely, given our dependence on foreign oil.

3. Foreign central banks must do something to shore up the dollar.

Those nations with the money to do it include Great Britain, France, and probably Germany. I don't see them coming to our assistance.

The press releases from the G20 conference gave no hint that steps to shore up the dollar were being considered by any of the 20 top economic nations.

The Brown predicion is higher interest rates and an increase in the inflation rate. The multi trillion dollar debt presages those two trends.

I don't know what you are going to do, but I am keeping my bond investments short term.

If you want to know which way the dollar is going, see if you can find out what Warren Buffet is doing! Is he buying or selling dollars??

Ryan, marrying a bright woman is a really bright thing to do. :)

Another great response. Thanks for your insight Bob:)

Great response, Bob. What are you doing instead of bond investments (other than short-term)?

Can we PLEASE put the "oil imported for SUV's" to rest?

Only 28% of a barrel of crude oil is used for gasoline. Don't forget how much crude oil it takes just to refine that barrel of crude oil.

For the record, I understand that almost half a barrel of refined oil is used for gasoline. Also, my sedan, because I must use premium octane, gets less per gallon than my husband's Expedition which is a huge SUV.

Actually, marrying a rich woman is way smarter, lol!
Ryan and his Villanova undergrad degree still can't see the forest as the trees are in his line of fire always.
M

I notice people often resort to personal attacks when they can't discuss the issues, that's unfortunate.:(