Oct 27 2008
If we are in such trouble, why is the dollar getting stronger?
“I don’t get it,” said my husband, in a most puzzled tone. “If the country is in so much trouble, why then is our currency so strong all of a sudden?”
It does seem counterintuitive. The Congress has just had to fork out billions to rescue the financial industry. There are banks going broke, and the job losses have just gone wild in the past few weeks. In the meantime, our dollar is bouncing back from getting kicked to pieces in the past few years. What a bizarre time for our currency to be doing so well, right?
Well, right, in a way. But it really does make sense. People are frightened of what the future holds in their bank accounts. The call has been made by many finacial experts to jump out of the market and put all their cash in government bonds only. The result: people are flocking to Treasuries and the dollar. Since people are willing to pay more than the next person to get the dollar, other currencies drop in value.
“Okay,” he said, still unconvinced. “So I don’t get it. Who wants the currency of a nation that is in such debt?”
“Good point,” I said. “Consider the fact that the U.S. government has always paid its treasury debt. Always. No matter what the rest of the people had to go through, it has always paid its debt. That’s critical to overseas investors. They want to be sure they don’t lose their money, consequently, they invest with a nation that has a long history of keeping its committment to pay up.
Now how long the dollar is going to stay strong for overseas investors is anyone’s guess. First, if the national debt gets back into a more manageable zone, then the dollar will probably remain strong. If, however, overseas investors get nervous, then gold will rise again and the dollar may fall.
In the meantime, you can take advantage of this rising dollar by heading overseas for vacation, and there’s no better time than now. The airlines are cutting special deals for international flights because of the drop in fuel costs, and some are even revisiting how much it charges to travel all together. Travel packages might even be cheaper than any other time in the past few years. Finally, shopping and hotels might be a bargain since many Americans are staying home more now due to job cutbacks. Consider all of these factors.
And since this blog is all about investing, this might be a time to look into investing in the Forex. Today.com even has a forex trading blog that might be of service to you. Tell ‘em I sent you, and good luck riding a new wave on the dollar.
I’m a freelancer and get paid by clients worldwide in US dollars so the fate of the dollar is far more important to me than the stock exchange in any country. I think that one reason the dollar is getting stronger (it’s gone up over 20% in the last 2 months) is because other currencies are weakening as they bring their financial crisis into the public arena. Whatever the reason is, it’s sure going to be a blessing for my finances this month!
You are absolutely right, to a great extent. It’s sort of a chicken-egg thing. Without others weakening, the dollar wouldn’t gain. But people are rushing to the dollar, thence causing the others to weaken. I hadn’t even thought of the freelancers out there and how, since they are getting paid by the dollar it would make such a difference in their lives. (I’m sure you aren’t alone in this.) Thanks so much for enlightening us!