Sun, Nov 22, 2009
|
A broad perspective on the U.S Dollar and what I think is happening now.
| | Friday, February 11, 2005 @ 02:36 PM EST
|  Printer Friendly Page
 Send this Story to a Friend |
Contributed by: tzachari
tzachari Properties
Read more archived articles about Credit and Finance
In the begining there was Gold. People exchanged goods and services with Gold. Before long, we realized that it was extremely difficult to conduct these type of transactions. Imagine the difficulty of giving somebody a bagfull of gold coins in exchange for a service. Some hot shot banker thought, it might be easier to conduct transactions by exchanging receipts for the gold, which is equivalent to the gold itself, and let the gold remain in the warehouse. Thus the dollar was born which is merely a receipt for the gold stored in the
 | |
| Advertisement |
warehouse. At any point, you should be able to go to the warehouse and exchange the dollar for gold. The hotshot banker became the now known as the Federal reserve. The dollar enjoyed widespread recognition by the people of the world as it could be trusted. Slowly, other countries thought the dollar as a good currency to hold/buy as it was backed by the United States and the people here. But guess what, the government got into unnecessary expenditures and had to print money for its expenses. This gave rise to 'fiat money'. Printing excesss of money without actually increasing the gold reserves in the warehouses, resulted in a fall in the dollar value, relative to the gold and it is still falling even today.
Meanwhile, the world became divided into 2 groups of people. The people who like to save (rest of the world) and the people who like to spend (Americans). We developed the insatiable need to buy big things, starting with big houses, big cars etc and the fed tinkered around with its broad policy to satisfy this need and keep the momentum going. The big houses that we bought using big mortgages was eventually held by foreign countries. We needed clothes to wear and the foreigners were glad to supply us with clothes in return for the dollar. Here began a cyclical pattern where we consume and they deliver. Before long, total outputs of goods from this country shrank relative to what we import. That is why we hear every day in the news about our record trade deficit. Now, the foreigners got quesy holding dollar in their hands, because of its losing value, compared to the euro. Do you know what happens if the foreigners stop buying $$? We will have to buy back all of the $$ and this country will be flush with the dollar which holds little value. You may ask, why don't the foreigners stop buying the U.S dollar completely. The answer is there are no other currencies in this world mature enough and dynamic enough other than the U.S dollar. The only currency that that seems O.K is the euro, but this is a new currency with little credibility. There is no alternative other than the U.S dollar.
The fed intervened and promised the foreigners that it will bring control back to the masses and will not allow the dollar value fall. One way to bring control back to the masses is by tinkering around with the interest rates. Hype can be decreased and credibility and can be brought into the system.
All the above is pure theoretical though! And the question you should ask is, how can I make money?? Simple, put yourself in the right time of a cycle and stay away from the masses. Easier said than done! That is why you only have a few billionaires and a handful of millionaires. But the only rule that has stood the test of time is 'BUY LOW AND SELL HIGH".
Good luck.
Word Cloud:
masses enough what into value, little than currency gold there warehouse. stop buying conduct goods around control long, other exchange became people before gold. need broad like easier dollar. dollar banker will have think back which world perspective foreigners with this happening country relative should now. bring money clothes time only
|
|
| |
Average Score: 3.14
Votes: 7
|
|
|
|
|
Logged In members can moderate all comments.
|
|
