Make money devalues dollar

3 Reasons Why Countries Devalue Their Currency | Investopedia

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US Dollar Will Devalue by 20% to 30% (FREEPOM) | Philosophy of Metrics

Do you want to be redirected to Hedgeable. How the Wealthy Invest 3. The Financial Crisis 5. What Drives the Markets? The Dollar Topic 4: The Fed Topic 5: The Impact of Losses Appendix Definitions Slang Recommended Reading.

The Dollar There are a lot of misconceptions out there about the dollar, how it affects our economy, and ways to solve the many problems we now face. We hope to be able to answer some of those questions. Because of the stability of gold, it was seen as a hedge against hyperinflation and the kind of economic tampering in monetary policy that had brought down the Spanish and Roman Empires.

Critics of Gold had warned that due to it being a physical commodity, the U. This was done to provide confidence to the world that the dollar was secure. Thus began the long, strange trip that has seen the U.

Dollar become the most sought after currency among businessman and commoners alike. Under President Nixon the Bretton Woods establishment began to crumble. International pressure took hold on the U. Today, most currencies in the world freely float against one another many are still pegged to the U. New dollars are issued when the Federal Reserve elects to fund the purchase of debt, primarily U.

Treasury Bonds, by creating new reserves rather than financing the purchase with existing reserves. When the bond issuer spends the money, new dollars are pumped into the system. When compared to hard money backed by gold or silver, this debt-based approach has the advantage of making the currency elastic, giving the government a means of expanding or contracting the money supply in response to changing economic conditions. The disadvantage of this approach is inflation. The money supply must be continually expanded in order to finance interest payments on the debt by which it is issued.

This devalues the currency, causing inflation. Many economists believe that international demand for dollars in the form of our debt such as Treasury Bills allows the United States to maintain huge trade deficits, without fear of major currency devaluation as was seen in Mexico in and Russia in Why is Currency Devaluation So Bad?

It is simple really. The less your currency is worth, the less goods and services you can buy with your money, the less companies make for receiving payment for goods and services, and the less people actually make when they take their paychecks home. This causes governments and citizens to pump more and more money into the system to try to get the number of goods that they used to buy.

So, not only is their money worth less, but inflation also can become a very big problem. If the world switches to some type of new reserve currency, whether it be the Euro, the Yuan, or some basket of currencies, there will be an initial shock to the U. Just imagine if there was a giant recall of some product put out by Kraft.

Either the people who own the Kraft product can sell it on the open market, or they can sell it back to Kraft. But what happens to the value of the product that is now flooding the market?

It naturally will depreciate and future demand for it will be lower. This is the situation the U. The first option is not a good one, and in fact it is probably not legal. Federal Reserve cannot monetize the debt that it issues. This is the problem, and the reason why so many economists and independent observers are nervous. If it happens, we are in for a painful devaluation process that will shake our economic system to its core. If foreign governments decide to stop buying our debt what will happen to the dollar?

But do foreign governments have a choice? The Chinese, the largest holders of U. If they stop purchasing our debt, their currency, and thus their economy, will go right into the toilet along with ours.

If they decide to sell the U. This is the inherent problem with the Ponzi scheme that has been run over the last 30 years. We consume more than we produce, and those who buy our debt continue to pump money into the system, which perpetuates the cycle. It is still possible that foreigners will make the strategic decision that their economy can withstand the short-term shock to their economy if they sell their dollar reserves.

While their economy may recover, will the U. Who will buy our debt?

These questions remain to be answered by our policy makers. Quick Links API Careers Innovation Press Rewards Security Small Biz Legal Disclaimer Privacy Policy Terms of Use Rewards Terms SEC ADV.

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