Some believe that the decline of the dollar against the currencies of American's trading partners will help correct the USA's trade deficit, and the dollar will stop falling when the trade imbalance is corrected. However, the evidence is that the opposite is happening - the $US has declined 40% against the Euro over the last 2 years, and during this time America's trade deficit has continued to deteriorate.

J-CURVE

The shape of the trend of a country’s trade balance following a DEVALUATION. A lower EXCHANGE RATE initially means cheaper EXPORTS and more expensive IMPORTS, making the current account worse (a bigger DEFICIT or smaller surplus). After a while, though, the volume of exports will start to rise because of their lower PRICE to foreign buyers, and domestic consumers will buy fewer of the costlier imports. Eventually, the trade balance will improve on what it was before the devaluation.

There seems to be an idea that the dollars fall is out of their control, whereas I suspect they are behind the whole thing.

They police the world

and now we must pay for it.

Smurf1976    May 29 2005, 01:31 PM  Post #9      HPC Regular      Group: Members  Posts: 402  Joined: 6-February 05  From: Hobart, Tasmania, Australia  Member No.: 1,303          If we get a deflation then the USD ought to be the STRONGEST currency since the largest portion of debts are denominated in USD.    In any event, trading on margin the worst that can happen is you lose your margin. If you buy/sell near a major turning point then you only need risk a few percent of your savings (less than 5%) to have effecively invested the whole lot in another currency. If it works out you get the full benefits, worse case you lose 5%.    If the USD really does crash then don't forget that ultimately all other FIAT currencies are supported by nothing more than the USD is. For that matter, most other currencies are supported BY the USD so you really don't want to be holding any of them if the USD crashes.    This comment won't be popular I'm sure but if you honestly believe that the USD is going to crash then the only real way to protect yorself is to buy something physical which can't be destroyed along with the currency. In practice that means buying gold and REAL ESTATE. Renting is going to be a real problem in an economic collapse so you really do want to own a house (preferably a house with a garden to use to grow food located well away from any city). Stay well clear of bonds, stocks and any currency.    The biggest challenge in a currency collapse will be basic survival. No point going down to the supermarket with a few gold coins when they have nothing to sell. Self sufficiency is the order of the day and house possession (note "possession" as opposed to "ownership") is a must.    The concept of a house price crash and USD collapse are somewhat contradictory IMO. Probably without realizing it, most people on HPC forum are effectively arguing that there will be a deflation which historically has always lead to the senior currency (presently the USD) becoming peristently STRONG. This time it's different? Perhaps it is. Perhaps house prices will keep rising and the USD really is finished but I seriously doubt it.    True, some USD buyers have disappeared but then the USD has been RISING which suggests that SOMEONE is buying. My guess is that it's the early stages of a scramble for Dollars as we enter a deflationary period. The Dollars being needed to repay debts. Time will tell.          --------------------    Turn off the TV and THINK

The US seem determined to protect the dollar,hence the recent IR increases.