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God desires that ALL people would accept God's love and salvation through Jesus Christ. God has compelled me to share information with the world relating to the biblical seven year tribulation in order to share Truth in a deceived world.

In the beginning was the Word, and the Word was with God, and the Word was God. He was with God in the beginning. Through Him all things were made; without Him nothing was made that has been made. In Him was life, and that life was the light of men. The light shines in the darkness, but the darkness has not understood it. (John 1:1-5)

Jesus answered, "I AM the way and the truth and the life. No one comes to the Father except through me." (John 14:6)

Wednesday, February 27, 2008

Why Is the Dollar Losing Value?

ABC News: Euro at Record High: Impact on You?
From ABC News:

Look at the record-high price of oil. Even if the same amount of oil is being pumped out of the ground, since it is traded in dollars and the dollar has weakened, the price of oil has increased to make up for the lost value of the dollar, creating a sort of vicious cycle.

Oil-producing countries don't want to keep all the dollars they are getting for their oil, since it's worth less, so they are diversifying and converting their dollars into euros or other currencies. That pushes more dollars back out into currency markets, which in turn pushes down the dollar's value.

One analyst told ABC News that Russia used to have 90 percent of its financial reserves in dollars. It now has 45 percent in dollars, 45 percent in euros and 10 percent in British pounds.

But a weak dollar is bad, because it leads to inflation in this country. Imports from foreign countries will become more expensive, and in particular, oil will be more expensive. That puts pressure on businesses to increase prices for anything that uses oil or products that come from overseas. One benefit for American shoppers is that China has largely pegged its currency to ours[for now], so that keeps the price of Chinese-made goods low and, therefore, keeps a check on inflation.

What does a weak dollar mean for all that, and why should I care? If the dollar falls too much, foreign investors and banks won't be so interested in buying T-bills and bonds that keep the U.S. government and businesses humming. That's because the interest rate might not be enough to compensate for inflation. In other words, whatever is earned would be worth less money.

To attract buyers, the T-bills and bonds will sell for less and have higher interest rates. And since many mortgages are tied to these interest rates, that might mean mortgage rates won't drop anytime soon. Also, a weak dollar might scare away foreign investors who don't want to own stock in U.S. companies.

Could there be a wholesale dumping of U.S. dollars by foreign governments and investors? Maybe. But that would be executing a sort of "nuclear option."

If China were to dump its reserves of dollars into currency markets, that would dramatically lower the value of the dollar. All those bonds and T-bills that the country holds would drop in value, as inflation would erase any gains from the investment. China would be less able to sell its goods to the United States because the dollar would be too weak, and Chinese products would be more expensive.

If Saudi Arabia were to call for oil to be traded in euros, "that announcement would be the end of the U.S. dollar," said Ashraf Laidi, chief currency analyst at CMC Markets. But he said that would never happen as long as the United States and Saudi Arabia are allies, and the U.S. continues to negotiate arms and other deals with the world's largest oil producer.

Blogger's note: In other words, China, Saudi Arabia, and maybe even Iran and Russia have the U.S. over the proverbial barrel. To put it another way, the U.S. is treacherously standing on the edge. It may take only a little nudge to put the U.S. into a very deep ravine.

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