Case Study - Devaluation Of Dollar During Bush Administration

Question

Devaluation of the Dollar, How will it affect you?

Here is a short backgrounder of the problems posed by the falling dollar that started during the Bush years and seems to continue under Obama. Please give me a paper with your thoughts on how it will affect you on a MICRO level. What are the implications of a company moving production overseas in a dropping dollar value? Good or bad business for the company?, For you?

Read the following and find your topic.

There are two basic implications for currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit. Good for business? May be, maybe not.

The coming U.S. dollar devaluation will have a major impact on all of us. “The fact that the dollar is falling in value means that investors consider the United States economy to be in disarray and out of control.”. The U.S. economy is mired in a huge amount of debt. The government is sitting on up to $125 trillion of debt which must be paid at some time in the future. This debt includes: $11.5 trillion National debt – this debt has exploded in the last 12 months. It includes cumulative debt plus all the bailouts, stimulus plans, and the 2009 deficit. $104 trillion Unfunded obligations – this includes obligations for social security and Medicare. There are 80 million baby boomers scheduled to retire over the next decade. We do not have the money to make these payments. $9 trillion Projected deficits over the next 10 years $1 trillion Health care reform – When the final health care reform package is passed, this number can be much higher. There are major concerns about the U.S. government’s ability to pay what it owes.
In order to pay its bills, the U.S. government must borrow a significant amount of money from investors (lenders). A large percentage of these lenders are foreign countries such as China, India, Brazil, and European countries. These countries have been complaining about the falling value of the dollar. They are imploring the Obama administration to start getting its financial house in order. Instead, the government continues to expand its debt level in a very major way. China and India have built up large cash reserves because their economies are booming. They want to invest this reserve cash. In the past, U.S. dollar investments made sense. They were backed by the good faith of the U.S. government.

But because of the falling value of the dollar, this is slashing the return on their investments. They have every right to move from the U.S. dollar into stronger investments. This puts pressure on the dollar to fall even further. Another way to cover these huge deficits is to tax Americans. Unfortunately, this will probably be coming soon. But in the middle of a serious recession is the worse time to impose a major tax. The only other alternative to covering our deficits is to devalue our currency, the U.S. dollar. This will have a very detrimental impact on all of us. This scenario is very likely. How it will impact you and me? Hyper inflation. How will this affect you? How will it affect the retiree or those on fixed income? In the past, a high percentage of our country’s Gross Domestic Product (total sales of goods and services) was from manufacturing. Today, it’s not. Much of our country’s sales are now from imported products. What will happen in this scenario? What will happen if the oil producers move from the dollar to the Euro or Wan? How will the economy of South Florida be effected?

Summary

The question in economics is about the devaluation of dollar during the Jr. Bush administration and its effects on the economy. The major effects of devaluating a currency, in this case the dollar have been discussed in the solution. Some of the effects include increase in exports and decrease in imports, increase in inflation and the general credit worthiness of the country can be affected by devaluing the currency. These and other major factors that will be effected by currency devaluation have been discussed in the solution.

Total Word Count 1091

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