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Value of USD
Old 08-05-2009, 08:01 PM   #1
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Value of USD

Value of USD has been in decline for years... Anything coming from the outside the country ends up costing more. Just as an example, USD was worth about 120 yen / dollar in 2004 and now it hovers around 95 yen / dollar. When I went to Canada in 2001, everything seemed really cheap, but now Canadians are traveling to US to shop. I guess it doesn't hurt you directly as much if you never have to wire/transfer money to other currencies or live/travel abroad, but I'm sure we will feel some impact at the home front too with all the trading we do with other countries.

What does it mean for us? Is this called inflation in a way? (not inside US but in world trade). How will it affect us in the near future?

What would raise the value of the dollar and what would be the side effect of it?

This is so confusing to me.

Take out your crystal ball and tell me
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Old 08-05-2009, 08:35 PM   #2
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It doesn't take a Harvard Economist to figure out that, if you spend more money than you have (and borrowing), the end result is a fiscal implosion.

In past recessions, the housing industry helped get the economy back
on track. Home builders ramped up production, expecting buyers to take
advantage of lower prices and jump into the market. But not this time. I guess someone will chime in here and tell me the cash for clunker is our fix now
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Old 08-05-2009, 09:06 PM   #3
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Having gone on a spending spree that is not over yet, the administration will have to raise taxes and print money (=inflation). If it wants the US dollar to become stronger, printing money is the wrong direction. Personally, I can live with a little inflation. It is damned hard to live with a little unemployment. Fortunately, the Democrats are in power. Inflation is coming.
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Old 08-05-2009, 09:21 PM   #4
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Yes, the dollar rose up during the crisis, but is weakening again against foreign currencies. For example, 1 Euro is back to $1.44 US. This, despite the fact that the Eurozone economies aren't all that great, is because their gummints exercise better fiscal restraints.

It remains to be seen if inflation will cure unemployment - I can only hope so, else the bitter medicine would be for naught.

However, certain things are certain. Inflation will reward borrowers and penalize savers. As nearly all people in this forum are among the latter group, we better keep our eyes peeled for ways to protect ourselves.
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Old 08-06-2009, 08:17 AM   #5
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Originally Posted by oldtrig View Post
I guess someone will chime in here and tell me the cash for clunker is our fix now
I saw this on the net, so it must be true:
U.S. ‘Clunkers’ Add 0.5 Percentage Point to GDP: Chart of Day - Bloomberg.com
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Old 08-06-2009, 10:45 AM   #6
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I guess someone will chime in here and tell me the cash for clunker is our fix now
Brilliant solution! Let's just give money away and wow won't that stimulate our economy! Cash for clunkers! Cash for houses! Cash for flat screen TVs! We've found the magic formula, just give away money and people will spend it and drive our economy! Whoo-hoo! Keep those printing presses running! What could go wrong?
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Old 08-06-2009, 11:28 AM   #7
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However, certain things are certain. Inflation will reward borrowers and penalize savers. As nearly all people in this forum are among the latter group, we better keep our eyes peeled for ways to protect ourselves.
NW-Bound, you are right that most of us are savers, not borrowers. Never thought I'd have another mortgage at my age, but now I do (see previous rants by Koolau regarding the "process"). Anyway, my plan was to simply sell the old place and pay off said mortgage. Your comment makes me wonder if that is the wise choice.

How high DOES inflation have to get to negate the 5.37% interest I'm paying? I figure the interest is deductible (at the 25% rate since I'm paying the mortgage with fully taxable IRA money at that rate). Wouldn't that mean the effective interest rate is only about 4% (4.03)? If so, does that become a one-for-one calculation against current inflation (to a first approximation)? i.e., anything over 4% inflation means "keep the mortgage"! (This conclusion assumes I have something to do with the money which makes more than 4% minus any taxes incurred. I think most of us can fantasize a situation where we could do that - e.g., stock market, lotto tickets)

I'm sure we've discussed this before. I'll search for myself, but if anyone recalls a good treatise on mortgage interest vs. inflation, please clue me in.

I'm still shaking my head in disbelief that I find myself in this position. Never say never, I suppose. Thanks for any help
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Old 08-06-2009, 11:53 AM   #8
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Taking on a mortgage at a nice low rate like 5% or so is a great deal if you expect future inflation to be high. One nice thing about a mortgage is that you cordon off one of your biggest monthly expenses (maybe the biggest) from inflation. Your "rent" i.e. mortgage stays fixed, which helps while if your other expenses go up. Of course, once the house is paid off, you are living virtually "rent-free", so that might be event better - it depends on whether you have even "better" things to do with the money.

In terms of the USD continuing to decline going forward. I expect the same thing - very much so. We can all talk about why that is, or that it unfairly penalizes savers and rewards borrowers.

But the real question is - What are you going to do about it?

Diversifying investments away from the US$ is one way to deal with it. Make sure you have adequate exposure to International equity funds. Some folks go to the extreme of owning mostly international funds.

You can also gain some exposure to foreign currencies through some diversified bond funds.

Some folks also use commodities type funds to help protect both against future inflation as well as protect against future US$ decline. Yes, they can be closely related.

Audrey
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Old 08-06-2009, 01:29 PM   #9
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But the real question is - What are you going to do about it?

Audrey
Over the past 5 years, I have personally preferred foreign denominated CD's and foreign R.E.

I would be hesitant to buy more R.E. in a developing country as the past 2 years have seen 50-200% appreciation.

With regard to CD's many countries offer 3 year rates of 8.5% with under 3.5% inflation. While the real rates are attractive, the "currency kicker" is the key.

Because of the "global financial crisis" Many "major" currencies may decline in tandem or within narrow ranges and are only suitable for "traders".

Countries that are less dependent on trade with the USA, are less likely to defend their currencies and long term opportunities are created.
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Old 08-06-2009, 01:37 PM   #10
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Over the past 5 years, I have personally preferred foreign denominated CD's and foreign R.E.
Is your banking and investing still domiciled in the US, or mostly nearer to where you are now living?

Ha
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Old 08-06-2009, 01:52 PM   #11
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Is your banking and investing still domiciled in the US, or mostly nearer to where you are now living?

Ha
I have no banking or investments stateside any longer (not that there is anything wrong with those that do)! I moved everything legally and gradually over a period of several years.
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Old 08-06-2009, 03:14 PM   #12
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Which banks are you using? Do they exhange your transferred USD to their national currency before depositing the money? How does it work?
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Old 08-06-2009, 06:00 PM   #13
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Value of USD has been in decline for years... Anything coming from the outside the country ends up costing more. Just as an example, USD was worth about 120 yen / dollar in 2004 and now it hovers around 95 yen / dollar. When I went to Canada in 2001, everything seemed really cheap, but now Canadians are traveling to US to shop. I guess it doesn't hurt you directly as much if you never have to wire/transfer money to other currencies or live/travel abroad, but I'm sure we will feel some impact at the home front too with all the trading we do with other countries.

What does it mean for us? Is this called inflation in a way? (not inside US but in world trade). How will it affect us in the near future?

What would raise the value of the dollar and what would be the side effect of it?

This is so confusing to me.

Take out your crystal ball and tell me


At present there is a silent implosion occuring in income as companies are cutting costs in order to service their debts. This has resulted in most visibly in homeowners unable to service their mortgages causing them to default and hurting the financial system.

As this occurred and the US goverment scurried throughout the world to cover the debts of banks and nations, the US dollar actually rose. The stock market has rallied and government officials who a year ago declared a major meltdown was impossible now are claiming they have successfully prevented it by the extraordinary steps taken in October of 2008. With this the dollar has declined as world growth is appearing to be on the horizon and the rest of the world will do better than the US in a growth enviroment.

While the transfer of a trillion dollars to the financial industry throughout the world has kept the major banking industry afloat, the average banking customers condition worldwide is deteriorating. However despite chart after chart showing the fastest growth in unemployement and fastest tax declines ever, many feel we are on the cusp of something good for the economy.

This deterioration is reflecting itself in the funds the governments receive to provide their services - tax receipts on average are down 18 percent. It is nearing a critical mass of where a tax increase will be needed which the customers of the government and the banks most certainly cannot afford. The result is unlikely to be pretty for the economies of the world but most advantageous for holders of the currency of the most valuable nation in the world the United States.

The Chinese debt bubble will be even worse for their currency than for the US and the European economy is not be capable of saving the Euro. By default the US dollar will be the best performing currency.

This is what my crystal ball is forseeing, based on that the best performing asset in the next 12 months could very well be US Treasuries.
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Old 08-06-2009, 07:21 PM   #14
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Which banks are you using? Do they exhange your transferred USD to their national currency before depositing the money? How does it work?
In some countries you can have separate accounts for Dollars and Local Currency which allows you to withdraw/pay expenses,etc based on which currency is stronger.

In regard to CD's they must be purchased in "Local currency" in order to achieve the desired outcome. Banks are notorious for giving a bad exchange rate so depending on the country there may be "exchange houses" or "middlemen" on street corners who service the foreign tourist.

Personally, I have been dealing with the same women(for years) who stands on the corner a few blocks from my apartment and gives me "the best rate".

When I received a shipment of Dollars, I would convert a thousand per day at let's say 3 to 1 and deposit it in my Sole account. If the rate the next day dropped to 2.98, I would hold off for a day or two. Then I would use the Sole account to purchase the CD. After three years, if I am comfortable with the political situation and believe the Dollar will continue down, I would roll it over again. Since, I have been here the Dollar has fallen from a high of 3.60 to 1, to a low last year of 2.70 to one.

With the Financial meltdown last year it reversed trend last year and got back up to 3.25 but as fear in the world is waning, in the last few weeks we are back down to 2.96.

Not all Countries allow you to bring in and exchange large amounts of money outside there banking system, so you do need to do due diligence.
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Old 08-06-2009, 07:23 PM   #15
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Originally Posted by audreyh1 View Post
Taking on a mortgage at a nice low rate like 5% or so is a great deal if you expect future inflation to be high. One nice thing about a mortgage is that you cordon off one of your biggest monthly expenses (maybe the biggest) from inflation. Your "rent" i.e. mortgage stays fixed, which helps while if your other expenses go up. Of course, once the house is paid off, you are living virtually "rent-free", so that might be event better - it depends on whether you have even "better" things to do with the money.

In terms of the USD continuing to decline going forward. I expect the same thing - very much so. We can all talk about why that is, or that it unfairly penalizes savers and rewards borrowers.

But the real question is - What are you going to do about it?

Diversifying investments away from the US$ is one way to deal with it. Make sure you have adequate exposure to International equity funds. Some folks go to the extreme of owning mostly international funds.

You can also gain some exposure to foreign currencies through some diversified bond funds.

Some folks also use commodities type funds to help protect both against future inflation as well as protect against future US$ decline. Yes, they can be closely related.

Audrey
I too believe the dollar will inexorably decline. As a consequence, I have a fairly large slug of foreign equity mutual funds and individual stocks in mostly non-US, commodity-related companies (especially commodities that are typically priced in dollars). I have also had a substantial amount in CD's denominated in Brazilian reais for the past 3 years. There was a bit of a blip during the depths of the recent financial panic, as investors fled to US treasuries, but the real has now resumed its long march up against the dollar, and I think it will continue.
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Old 08-06-2009, 09:07 PM   #16
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I think the dollar will fall against foreign currencies for 3 reasons:
1. US government printing money like mad,
2. Dollar will end as world's reserve currency,
3. "End of American Empire" impacts

Years ago I read Birth of Plenty by Bernstein - he talks about rise and fall of the Spanish, Dutch, Chinese, French, British "economic empires" over the last 500 years.

As the British economic empire fell, I think the pound depreciated against foreign currencies.

Anybody have any long term Pound vs dollar references ? I though back between WW1 and WW2, it was upwards of $7 to the Pound.

What am I doing about it ? For the last 10-20 years, I've had around 50% of my equities international, along with some bonds and some real estate (very little here).
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Old 08-06-2009, 09:18 PM   #17
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What am I doing about it?

I am working in Canada, paid in Canadian pesos. Subtract Canadian taxes and 2.5% for currency conversion to US of A dollars. (Anybody, is there a cheaper way to change from loonie to greenback?)

My portfolio is about 50% US / 50% foreign, both in equities and bonds.

I do not really know where things are going to go, so I hedge my bets as advised in the Efficient Frontier and other places. It has served me well, even though everything went down in October or so.
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Old 08-07-2009, 08:00 AM   #18
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I own some foreign real estate but that's more to do with personal situation than pure investment philosophy. I'm also gradually working my equity allocation up to a 50% US / 50% Int'l allocation.

And I'm doing my best to make sure my kid is fluent in at least one foreign language ;-)
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Old 08-07-2009, 07:19 PM   #19
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I own some foreign real estate
Would that be in Portugal?
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Old 08-08-2009, 06:41 AM   #20
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Is your banking and investing still domiciled in the US, or mostly nearer to where you are now living?

Ha
Might not be what you are asking, but I assume you know about Everbank for FDIC insured foreign currency CDs.
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