Currency Exchange rates and how they effect you

Exchange rates are extremely important. The value of the US dollars is rapidly dropping and our politicians do not seem to care at all. This should be one of the main issues the Presidential candidates are addressing; however, it is not.

I want to start this post by talking about exchange rates. Exchange rates are extremely important and many people do not understand them.

My father-in-law moved to Germany about a year and a half ago. When he moved to Germany the exchange rate was $1.18 to one Euro. Yesterday the exchange rate was $1.45 to one Euro. Unfortunately for my father-in-law and his wife they are civilians who work for the US military and they are paid in US dollars. This means that their purchasing power has dropped by almost 23% since they moved to Germany. So if $100 used to buy 30 Big Macs in Germany, today the exact same $100 in Germany would buy 24.4 Big Macs (As long as the price of a Big Macs has stayed the same in Germany). It sucks to be my father-in-law in Germany.

From 1945 – the 1990’s the United States maintained a strong currency policy and it had been one of the goals of our Economic and monetary policy to keep the US dollar strong in relation to other currencies. This has changed over the last decade (Due to actions by both Republicans and Democrats).

Our currency is plummeting in value for several reasons:
1. The Fed recently cut interest rates twice.
2. Inflation has been increasing somewhat.
3. We have a massive trade deficit that is increasing each year.
4. Our economy is expected to grow very slowly and several other countries in the
world are expected to grow much more quickly (China, India, and Russia lead the
way).
5. The sub-prime mortgage crisis has had a significant effect on our currency.

There is one factor that helps keep our exchange rate from dropping even further:
1. A large and consistent budget deficit.

In December of 1998 it took $.847 to purchase one Euro. Today it costs $1.45 to purchase on Euro. The purchasing value of the dollar vs the Euro has declined by over 71% in less then nine years. The European Union, a collection of mostly Socialist Countries, is “kicking the crap out of the US” from an economic standpoint. This is a massive development and I will bet that most of you have read nothing about it in the mainstream media.

The Federal Reserve has a great document about exchange rates; I suggest you read it:
http://www.chicagofed.org/consumer_information/strong_dollar_weak_dollar.cfm

The weakening of the dollar should terrify Americans. It should terrify Americans because our annual budget deficit is financed mainly by China and Japan. If China and Japan decide to stop purchasing US treasuries then we will be in huge trouble… That time is coming in my opinion…

The weak dollar has the following effect:
1. It helps those US companies with operations in the US who export products
overseas.
2. It should entice more tourists from foreign countries to come to the US (This has
not been the case to date).
3. It entices foreign investors to purchase US companies and assets.
4. Consumers face higher prices on foreign products (Except China since they
pegged their currency to ours).
5. It really hurts Americans traveling and living abroad.

Our politicians in Washington DC just do NOT understand what they are doing…

Mike Sylvester