ECONOMICS PRIMER for everyone asking about the US DOLLAR
 

From GFY's Resident Economist, me...

First things first. Here is the chart for MZM (Money Zero Maturity) aka The Stock of Money. This is the measure of the liquid money supply within an economy. MZM has become one of the preferred measures of money supply because it better represents money readily available within the economy for spending and consumption. This chart is from 1/1/2000 to the present. I got the statistics from Economagic.com.

http://askbuff.com/mzmgraph.gif

As you can see, the Federal Reserve has been increasing the money supply at an incredible rate over the last 3 years. This makes each dollar worth less and less over time. That is why it costs more and more dollars to buy other currencies, like the Euro. This is also why the price of commodities like Gold are being bid up. Relative to a fiat currency like the dollar, there is a fixed amont of gold. Another reason gold is being bid up is that gold is traditionally a hedge against inflation, and when the government starts printing dollars like there's no tomorrow, inflation follows.

So what's the future of the dollar? A general trend downward in value until such time as the government stops creating new money out of thin air.

Do you know when the downward trend starts?

Once the euro hits 1.35 US the Central Banks will step in because this will hurt international trade WAY too much and then the US will raise and the Euro will fall.

it's now 1.25.. do you have a guess when will it hit .35?
I guess in fall of 2004 like September..
just an humble opininon though I'm not an economist.

Just wondering, did you also cut & paste your economics PhD?

Good post, Buff. There's also the Iraq expenses, the jobless recovery, and other factors. Plus OPEC might switch to EURO as their currency standard.

thats it, im moving to europe

At which time, they will no longer be propping the stock market up with all the funny money and the bear can continue.

EUR/USD last trade 1.2625
New records everyday! I'm really worried about the excessive speed of this growth.

:1orglaugh :1orglaugh :1orglaugh :thumbsup

I agree with ya sorta, except....

Growth in money supply is usually accompanied by inflation, which is what really does the damage.

Yet inflation has remained relatitively low.

I claim there is a different factor at work here. The dollar is falling because the world is becoming less and less interested in holding dollars. Why? Because the huge deficit spending and other irresponsible policies that have been pursued lately make inflation almost a certainty in the future.

Countries who rack up debt that they can never really pay back have a history of inflating their currency, it is an easy way to pay back $.80 on the dollar. The investment world out there now sees that as a real possibility for the US.

Also, there is the issue of which currency, the dollar or the Euro, will be used in major world commercial transactions, such as for oil. The dollar had a virtual lock on that role, but that lock is looking shakier by the month.