Weaker Dollar = Weaker US

Weaker Dollar = Weaker US? Are the consequences of a weakening currency all negative? Nope, click here for the glass half full version posted earlier this week. Now we get to be depressed (Joe Prozac) and discuss the negative aspects of a weakening currency. Okay great, is everybody nice and depressed and ready to read on?

Joe was depressed after trying unsuccessfully to convince JoAnn to accept a diamond ring before prices shot up. Things are looking better for Joe since the last post however, unlike the US Dollar. The dollar continues to inflate (Joe home-made hot air balloon) with out much of anything to bring it back down. (Joe wasn't inside)

Disadvantages of a Weak Dollar

Inflation - Everybody knows a weakening currency leads to inflation, which subsequently decreases your purchasing power. This was one of the main causes of our current recession. Inflation starts with investors bidding up commodities as a form of hedging against possible inflation - which ironically further aggravates inflation. Commodities such as oil are building blocks for manufacturing; and commodities such as corn, soybean, and wheat (Joe farmers market) are building blocks of food production. Prices of end products are affected as the increased prices of commodities filter up through the economy. Also, inflation is simply a tax on savers because the value of money decreases.

Treasury Auctions - Think the Chinese will be upset if the rate of inflation surpasses the interest on their treasury purchases? Inflation damages investments of fixed interest debt such as US Treasury notes and bonds. The Chinese and various oil-exporting countries are in a pinch right now. If they stop purchasing our US Treasury notes and bonds the interest rates on current auctions will have to increase to attract buyers. This will in turn drive up interest rates - further damaging our housing market and delay the recovery. If they keep purchasing our worthless debt, they increase their exposure to debt that may not be able to be repaid in full with dollars that are worth anything. If we default these notes, the Chinese will seek restitution Jackie Chan style. At what point do we have to start asking permission from our international creditors whether to sign stimulus legislation? We're slowly being bought by some very dangerous creditors. (Joe, check-N-go)

International Positioning - It's no secret that the US is starting to slip a little bit on the international scene. Once the world economic and military superpower, now we're essentially owned by a handful of third-world nations. What was once inconceivable (Joe, hiding in the attic for five hours) is now starting to be realized because of poor fiscal decisions and a financial collapse which lead to a global recession. What we need to do now, however is protect the dollar. We've already ticked off our creditor nations once because of our crashing economy. It might be wise to avoid doing it again by protecting our dollar.