Will the USD value fall to record lows? If so, experts speculate a new US currency may arise! The Federal Reserve is pressured to act fast and to address the growing issues on the US monetary system.
They say money is the root of all evil. Others say money makes the world go around. Well I believe money is exactly what we are told to believe it is. Everyday our lives are scheduled and our emotions are swayed by the very thought of money. Where we live, what we eat, and where we work are determined by this thing called money. The United States has developed a system where by our desire and need to have money, dictates the value of money. It's now to the point that money also dictates the value in which we see in ourselves! I don't believe money is evil but it allows the creation of evil. Just as a gun is not evil, but it allows evil to be created. After many generations the energy around money has only grown stronger and more prevalent.
We are currently witnessing the most valued currency in the world at the peak of its valuation, the United States Dollar (USD). Yet there are indicators clear as day that may prove to be the undoing of this currency. Goods, Services, and the Companies who sell them are also at the height of their value, but again indicators show that this ride may soon be over. All the while, the majority of society concerns themselves only with the Kardashian's and the thieves who stole $12 million worth of jewelry while in their penthouse in Paris, France. Well I'm not here to talk about the stolen jewelry, but rather what the value of this jewelry may become if the economy & value of various currencies around the word fall below the basement!
What is $1 (USD) worth?
There are various Conversion or Exchange Rates that compare the USD, to other currencies around the world (i.e. The Euro, Yen, British Pound, Australian Dollar, Canadian Dollar, and many more). Currently the USD is the "Reserve Currency" for the entire world. Which has made it the measuring stick (for lack of better words), that other currencies around the world measure the value their monies. (This was started July 1944 at the Bretton Woods Conference during WWII)
These Exchange Rates can fluctuate every day, and they usually do. For example today (10/07/2016), $1 (USD) is worth €0.90 (Euro). Meaning if you went to a market in Europe, that accepted Euro's (€), and your total came to €0.90, then you could give the $1.00 (USD).
In order to determine the "Value" of the (USD), there are many factors and variables that determine this. Some factors include but are not limited to:
- The GDP (Gross Domestic Product) - The value of various goods & services produced by the United States.
- The CPI (Consumer Price Index) - The value of various goods & services consumed/purchased by U.S Household's.
- Supply & Demand of U.S goods & services.
- Various Stock Index Values (S & P 500, Dow Jones, NYSE, Nasdaq, etc.) These reflect the valuation of U.S. Companies and essentially the strength of their companies.
- Inflation (Historical Rates & Speculated Future Rates)
- U.S. Jobs Reports. / Unemployment Rates
- Value & Demand For U.S. Treasury Notes
- Foreign Exchange Reserves (How many USD do other country governments/central banks own. The more they hold, the higher the value of USD)
- U.S. National Debt
- Federal Reserve Interest Rates (Federal Funds Rates)
- ... All the factors effect another factor, which is "Investor Speculating"
When you take all these factors into consideration, it usually will determine how investors at every level feel about a given currency. (Especially those heavily invested)
There is current speculation that the USD will decline drastically if and when the Federal Reserve raises interest rates. One reason is thought because this will cause 'Lenders' of every level to tighten their belts and stop lending money. I live in San Francisco where there are hundreds of Tech Startups, who depend solely on the ability to borrow funds from Banks & Venture Capitalist, to run daily operations. This is because most Startups don't earn profits yet, but a venture capitalist fronted the money in exchange for either a percentage of the company and or the promise to repay the loan within a certain timeline. As you might imagine these types of investments can be very risky for the Bank's or Venture Capitalists. Thus it's imperative the Startup have a great idea along with a sound business plan.
This is no different than the agreement the United States Government has with the Federal Reserve Bank and various other countries (i.e. China), who have purchased much of the U.S. debt (a.k.a. Bond's). Like the Startups, who promise to be profitable in order to repay the debt by a certain timeline, so has the United States Government. When you hear of the deficit, they are referring to the U.S. National Debt (Currently Sitting at $19.5 Trillion USD). Since the U.S. Government's only recourse to pay this money back, is via collecting taxes from us (The Citizens of The United States of America), it's imperative the job market and economy be stable. Otherwise if people don't work they can't pay taxes. They also can't buy consumer goods from business owners, who then can't pay their taxes because they aren't selling any product's. This is why the "Job Market" report coming out (Fri. Oct 7, 2016) is extremely important.
This report shows things like the unemployment rate, the amount of jobs created, jobs in demand, etc. This is important because the Federal Reserve claims the results of this report will determine their decision of raising rates. They were supposed to raise rates two meetings ago, but did not. They claim it's because unemployment hadn't improved inflation was not at the rate they wanted. There are a few concerns if and when the Fed raises rates. When interest rates are raised by the Fed, there is a big fear that the stock market will drop out of the sky, inflation will shoot through the roof, and lastly the value of the USD might become worthless!
I would say these are valid concerns. But the alternative could possibly have an even worse affect on the USD value. Currently the stock market is at an all high and undeservedly so. If the stock market were to drop and have a "correction", as the industry says, many believe it will be for the best. Sure , companies whose stock drops would have to evolve their business model to please stockholders, and the companies who go out of business would have to find new jobs. But eventually things will cool off and the universe will be as it should. But what about inflation?
What Is Inflation?
Simply put, inflation is a number(%) that shows the increase or decrease of the value of consumer goods found on the CPI. For example let's assume that on average there was a 3% increase in inflation from 2014 - 2015. That would mean the cost of items on the CPI have gone up in cost by 3% (on average). A real life scenario could be a gallon of 'Milk', for example, in 2014 was $2.86 but in 2015 it cost $3.42. That would be an example of inflation increasing. Inflation is also an indication of the value of the dollar throughout history.
The value of money or the USD in our case, is measured by the 'buying power' the USD has on Consumer Goods (i.e. Food, Entertainment, Automobile's, etc.). For example $1.00 today (2016), would have the same buying power of $2.92 in (1980). A more extreme example would be, $1.00 in (2016), would be the same as having $24.33 in (1913). You must remember that the value of goods and services would also decrease by the same (%) of the USD. So if a gallon of milk was $3.42 in (2016), it would have cost $0.14 in (1913). So if you had $1.00 in your pocket in (1913), you'd have the buying power of $24.33 by the standards of (2016). The reason inflation raising could be an issue is that if the cost of goods and services goes up but the value of our money goes down, then we the people (who are middle class) will quickly become poor!
Milk could become $20.00, for example, or 1 gallon of gas could be $29.54, if the market were to have a drastic downswing that some economists believe. Meaning life could really be difficult!
Thus, keep an eye out on your money. Stop overspending, under saving, and take your financial future serious! I believe that far too many people don't take their future finances serious. They either believe they have time and will soon get to it. Then the days turn to weeks, the weeks to months, the months to years, and then retirement begins to draw near. Then what? Don't be one of the baby boomers turning 65 years old with less than $10,000 to their name! If you are one who plans to depend on the government, I wouldn't do it. There is no telling what the future will hold when it comes to the U.S Government. If I were a betting man, I would bet that the U.S. cannot continue to be a welfare state for much longer.
Please watch this video put out by JP Morgan, which briefly explains the current state of the USD, and the possible future state it could be in. I'm not trying to scare anyone, I'm only trying to share information, in order for you to better prepare for your future.
JP Morgan Video: Over Inflated USD Could Cause A Bubble
Please Take Care & God Bless!
