How does the Low US Dollar Affect Your Retirement?

[ShokWaveRider]

This is another soap box rant of mine, hopefully some of you will agree.

The Government tries to convince us all that the at low US Dollar is good for the economy. While it may be for SOME. I am not so sure it is good for the countries consumers and hense us ER's. Is it only me that thinks this, or is this just another government spin? Just to justify their mismanagement of Government funds (Our Taxes), whether it be military spending or $500 hammers, or the deficit(s).

I have tried and tried to understand this theory, but EVERYTHING I can think of, at the consumer level is affected to the adverse by the low dollar.

The US Imports at least some major parts of most items produced either, in the USA or Off-Shore. And by the way tons of STUFF is made Off-Shore by US Companies. So even if you get all patriotic and commit to buy American, you really aren't. Check this out..

http://edition.cnn.com/CNN/Programs/lou.dobbs.tonight/

Click on List of companies exporting jobs there are thousands! I know this is based on jobs, but it also indicates stuff is being made Off-Shore and Re-Imported.

So by default we will be paying more for everything even if it is actually made in the US because of the low Dollar. The fact that most consumer items contain parts from overseas, mandates it.

Examples:

Computers - Parts mostly made in China no matter what badge is on them.

Cars - The Electronic parts are all manufactured overseas in most cases.

Consumer Electronics - The Americans could not make a good Stereo system or TV if they tried. Just look at the quality of a Zenith TV in comparison to a Sony or Mitsubishi. Physically as well as technically. And I bet even their parts come from China in the end.

Appliances - Most Electronic parts come from overseas.

These are but a few.

Now the big one that is hurting us NOW! Unless you are selling and not re-purchasing, Housing. With the UK pound being $1.8 US Plus and the Euro being $1.2 Plus, don't you think that this has something to do with the recent massive increase in house prices in desirable areas?

Funny how house prices started to increase almost immediately after the US Dollar started to fall dramatically, about 1 - 2 years ago, but mostly in the last year. Some of this increase is for sure also attributed to interest rates, but when you reduce interest rates the currency falls as people sell it for more favorable returns on cash in other countries. And this also attracts foreign buyers of REAL Property.

Look at Australia (5%+ in Savings Accounts) and the UK (4% + in Savings accounts). If you had a choice of where to put your hard money would you put it in a US CD at $2.x%? This in turn reduces the value of the currency along with the other factors mentioned.

Soooooo.... why doesn't the government make an effort to reduce the deficit and the national debt, and bolstering the US dollar, which in turn will encourage investment in US Debt and hense give the government more cash? Duh!

At the rate they are going, soon the US Dollar will no longer be the currency of choice, it will be the Euro. Which by the way is exactly what the European Community wants, including France and Germany. So instead of punishing them for not supporting the US in Iraq, they will be rewarded. Currently their consumers are being rewarded with cheaper houses and consumer goods puchased from America. Ever looked at housing costs in Europe? Makes you think twice about the housing boom, doesn't it?

By the way, this is just my opion, I could be wrong.

Off Soap Box.

SWR

[wabmester]

The argument that a weak dollar is good for the US is simple: our goods look cheaper, so our exports should increase, and our trade deficit should shrink.

The only problem is that while our dollar has fallen, our trade deficit continues to grow. Nobody wants to buy the stuff we make anymore, and our appetite for foreign produced goods continues to increase. This is not good news for our economy, but it's great news for the rest of the world.

If you're going to buy stocks, buy international.

I recently bought a Dell computer:

Parts were made in China

Assembled in Mexico

Tech support in India

I guess they're still doing the engineering/testing/order taking in the USA, but how much longer will that continue?

Hey, will my ER require a lot more money in ten years as the US economy continues to worsen?

Hey, will my ER require a lot more money in ten years as the US economy continues to worsen?

If you like predications - Here is another I heard last month. An economist that I mostly respect wrote a book on the coming deflation in the U.S. - He makes his claim that it has happend in our 'young' financial history of 120 years of markets. I'm not sure of the years and figures but I think around 1885-1910, the U.S. dollar actually grew in value (quite a bit).

I really don't put much in faith in predications, I just invest, diversify and let the chips fall where they may. When any one one trend starts happening with economy, it kicks off some unanticipated ones that have a balancing effect.

25 years ago, There was a predication that 'Gas Station Attendant' would be one of the largest growth jobs in the U.S. - Kinda right I guess - We're all pumping our own. Millions of jobs created that pay almost nothing.

[wabmester]

Strangely, deflation is a sign of a sick economy. So is high inflation. A "healthy" dollar loses about 2-3% of its value each year.

Japan recently suffered through a period of deflation. Greenspan thought we might be headed for deflation as well, which is why he kept interest rates so low for so long.

My understanding is that deflation is basically a side-effect of over capacity and over production. Interestingly, over capacity and over production is a side-effect of bubbles created by cheap capital. That's exactly where we were in the late 1990's, and the risk of Greenspan's low interest rates is that he'd put us back in that same spot.

So far, cheap capital hasn't spurred much capital investment in the last couple of years though, so we've potentially got a sideways-moving economy and no more room left to step on the accelerator.

Soooooo.... why doesn't the government make an effort to reduce the deficit and the national debt, and bolstering the US dollar, which in turn will encourage investment in US Debt and hense give the government more cash?

Because the ultimate plan is to 'starve the beast'. They don't have the balls to do it now, but eventually, the government will have to make dramatic cuts in spending, including medicare and social security.

Everyone wants lower taxes, but will not commit to the corresponding decreases in spending. Now we're told that we're in deficit spending mode because the 'war on terrorism' is costing. Well then, how are we going to pay for it?

[Beachbumz]

Does anyone have any advice on how to protect against a falling dollar? About 3 years ago, if you had 1 million dollars, you could buy 1.2 million euros, now you can get about $800,000 or so. With the rising deficits, I'm not sure this trend is going to reverse any time soon.

Another effect of the dollar dropping is with gas prices. Oil has not really risen all that much in the last 3 years in relative terms, so much as the dollar has been dropping. (as compared to euros). Bottom line, OPEC is still getting the same value as ever, but the declining dollar has almost doubled our gas prices.

[Whakamole]

Some ideas to protect against a falling dollar:

Gold, and gold/precious metals mutual funds.

Commodities, either directly through a fund like PCRDX or by investing in commodity-producing companies.

Energy funds.

Foreign bonds (which works only if the country whose bonds you own doesn't depreciate their currency just as much.)

Bank accounts not in dollars. Everbank has these products.

[dex]

Some ideas to protect against a falling dollar:

Gold, and gold/precious metals mutual funds. *

Commodities, either directly through a fund like PCRDX or by investing in commodity-producing companies.

Energy funds.

Foreign bonds (which works only if the country whose bonds you own doesn't depreciate their currency just as much.)

Bank accounts not in dollars. *Everbank has these products.

I agree with the recommendations except for energy funds. Oil is priced in US$. If the dollar falls the and the US economy slows the demad for oil will slow and the price of oil will fall. Near term it could go to $50. But how much after that? Wait for a pull back to buy the oil mutual funds. Also on PCRDX I would guess that is more tied to the world economy than the US$. I have 10K in that fund and waiting for it to get back to my purchase price and I'm getting out. I don't think there is much upside in the near term.

My guess on the stock market - low in Sept/Oct then up to Jan/Feb then a big down.

[Beachbumz]

Thanks whakamole and Dex. I'll look into those. I've justed opened an account with Interactive Brokers that allows currency trading, etc., but I know very little about it.