Friday, March 14, 2008

Say Goodbye To The Once Mighty U.S. Dollar

I think that almost everyone is aware that the U.S. dollar is struggling, but many are not truly aware of the severity of the situation. The Associated Press released an article yesterday which talked about some of the issues. It mainly focuses on how many businesses in foreign countries no longer accepting the U.S. dollar, but it also talks about some of the underlying issues as well. Here are some excerpts:

“Experts say the bleak U.S. economic forecast means it will take years for the greenback to recover its value and prestige.”

“The dollar has steadily eroded in value against the euro and other currencies since 2002 as U.S. budget and trade deficits ballooned, but fears of an American recession and credit crisis have sent the dollar to stunning lows amid predictions the slump will continue for a long time.”

“The dollar fell to a 12-year low against the Japanese yen Thursday, dropping below 100 yen to the dollar for the first time since November 1995. The euro rose to all time high and is currently trading above $1.55. Meanwhile gold hit a new benchmark today at $1,000 an ounce. That's a jump of nearly 20 percent just since Jan. 1.”

“While dollar cycles have come and gone, experts caution that it's now much more difficult to predict when this one will end because the euro didn't exist as competition for the dollar before.”

“During previous U.S. economic downturns, big foreign funds typically snapped up U.S. Treasury securities, helping to shore up the dollar to a certain degree. But the euro and currencies from other nations are now seen as legitimate options, and interest rates are higher outside the United States — meaning the funds can get better returns on investments elsewhere.”

“Nations that were once seen as incredibly risky for investments — such as Brazil — are now seen as good long-term bets.”

I have long been warning that the U.S. dollar was on the way down, as many other financial experts have been, but many people still seem to be in denial of the situation. Those who are still in denial need to wake up...and fast. The problems in the U.S. are going to be around for a while, and, in the meantime, investors need to look at diversifying across currencies in order to maintain the integrity of their investments’ value. Stubborn investors who refuse to abandon (or at least strongly diversify) the dollar, are likely to be very unhappy and very poor.

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