E-Answer.Net

In the really long terms the dollar will go back to the US Treasury gradually by the power of seigniorage that is to print more to dilute and hence to tax it proportionately back into the treasury.



In the shorter terms, to be politically correct, Bush and either of the GOP or the Democratic next president will have no choice but to keep verbally advocating for a strong dollar. The market, however, seems to prefer a weak dollar at the cost of inflation but only to a certain level. Given those factors, the dollar has a better chance to go up.



How do we push up the dollar? Either, or a mix, of these two choices, I think, will be a signal:



1) Raising interest rate to let international interest rate parity to push up the dollar. This solution is costly to domestic economy as well as export competitiveness, and both would reduce the tax revenue dollar and further worsen the current account deficit. The cost of serving the $9.5 trillion national debt would go up. And any stimulizing fiscal policy would have to be financed by debt and hence will be more costly. Pumping up the strong dollar by higher interest rate at this time is not to the best interest of both the private sector and the goverment.



2) A war in the Gulf area. This would weaken the OPEC tie, would cast doubts on credit of other goverments to reverse the trend of the US dollar flowing out of the treasuries of other nations, would fetch back our dollar from the oil exporting nations by selling out the stockpile of weapons, and would help refinery-only US oil companies (such as Velaro or Frontier Oil) to get better crude supply contracts from more US friendly goverments.

If you learn this theory, then it will help you understand how/why the dollar fluctuates.

This is the theory behind it:



A lot of this depends on the openness of trade relations between nations (it does not always work like this). Inflation rates play a key role in this.



Here is a very simple example:

At the beginning of the year Beer in Japan is 100 yen, in US it is $1.

Japan's inflation rate has been zero, American's rate is 4%.

One year from now Beer in Japan is 100 yen, in US it is $1.04

The dollar is worth 4% less than at the beginning of the year.

The dollar value dropped from $1 to $.96

4.06% = (1-X)/X

X=$.961



Exchange rate changed from

$1 = ¥100

to

$.96 = ¥100

DOWN, DOWN , DOWN , DOWN FASTTTTTTTTTTTTTTTT



David stated on this thread "It appears it may have reached a bottom. Time will tell."



Your joking, right?

This will go on for a LONG TIME. How can you expect the Fed to print money like crazy and not expect the value of the dollar to go down? The Dollar will collapse, they are making roads for the AMERO.

i love you anser number 2!! what a sexy anser. it shall fall even further... i think we are looking at another depression end of year...

The fed will raise rates at the next meeting so we will see some relief.

It appears it may have reached a bottom. Time will tell.

Into the cash register of the gas station.

Saudi oil

nowhere fast