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article imageOp-Ed: Dollar's movement reflects confidence in Washington's planning

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By Michael Krebs     Oct 10, 2009 in Business
The rise and fall of the U.S. dollar has become a reflection of worldwide confidence in Washington's plans - and, while there are some positive developments, the world seems largely unconvinced.
The rise and fall of the U.S. dollar is often attributed to "investor speculation" or to other complex yield technicalities that can numb the mind. While the topic of currency fluctuations is certainly not sexy, it is also not an overly cerebral subject: the market value of any given currency is determined by its supply and its demand.
However, it is also determined by the perceived confidence in the government that issues and maintains the currency in question. Federal Reserve Chairman Ben Bernanke issued comments on Friday to help boost the dollar, promising a return to more favorable interest rates and a post-stimulus environment that is more attractive to investors.
In the case of the U.S. dollar, there remains too much supply to meet an increasingly tepid demand. And this is largely attributed to the international community's confidence in the policies and the planning of the U.S. government. It is also attributed to the federal reserve's decision to flood the market with more dollars in an effort to stave off deflation.
There are some positive attributes to a weak dollar. The values of American exports and of experiences for Americans traveling abroad are considerably more affordable in a weak dollar environment. The drop in the dollar has positive implications for the U.S. trade deficit as well.
But a weak dollar does not offer a viable long-term strategy for the U.S. government, as spiking commodity prices - such as oil and other key imports - has very negative impact on the global economy and on the stature of America on the global stage. This drop in stature has a knock-on effect on the overall confidence in America as an investment vehicle.
The sell-off in dollars is a reflection of the world's confidence in U.S. economic policy and in the American government's forward-looking financial solutions. A continual downward direction in the dollar's value - and a continual drive to push the dollar from the world's reserve currency - is the clearest indication of the international community's lack of buy-in on the value of America's fiscal vision.
U.S. Democrats in the legislative and administrative branches of government should take notice of this perception, as it is their policies and their programs that are meeting this judgement.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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