Ok...so what is the REAL deal with the concern over the dollar?

lets456 ^ | 10/13/2009 | Me

[mikelets456]

I, like many, have been concerned about this administration and paying (literally) for their socialist agenda. We can go on forever about this. However, I have a question, concern and would like a better understanding about our dollar and what's at stake. First, for the past year or so I have been contemplating buying commodities added to my portfolio of stocks, mutual funds and other investments. As I was getting ready to buy some silver I starting to go over what has happened over the past 1.5 years. This is where I am a bit confused:

Last year the USD was actually weaker than it is now compared to other currencies. Oil was $147 per barrel and Gold was about $800 per ounce. The stock market (Dow) was around 10,000 and non-durable goods and durable goods were about the same price as now.

This is where it gets strange: Gold is about $1080 per ounce, Silver at $18. Oil at $72...However, the dollar is "stronger" against all currencies with the exception of the Euro which is only slightly higher. My question is, are commodities higher because of SPECULATION of a declining dollar? Is it also the old "price and demand theory"? Meaning are the speculators buying up commodities so the price is going up?

For the dollar to totally collapse wouldn't the world's economy or every one's currency crumble as well? Banks, businesses are all intertwined...loans, modeling and transferring of all currencies between foreign and domestically owned companies.

I think the collapse of any currency will have a profound affect on the world....but the dollar's collapse will cause a world wide collapse.

I am not a "money guy"....just adding my thoughts for discussion.

[equalitybeforethelaw]

There are too many of them and they won’t stop printing more. Does that answer the question?

[Dick Bachert]

You mean BESIDE THE FACT THAT THERE AREN’T ANY “DOLLARS” ANY MORE?

[mikelets456]

I understand that...but how much of that has actually been spent? How much spending can be halted if a “new” administration takes over?

[Tenacious 1]

Good question(s). I have some of the same. I can only answer a simple part of it. It is the obvious part.

The dollar becomes worth less as it’s purchasing power against all goods, commoddities and foreign currency decreases. If more dollars are easier to get, it gets dolled out faster and inflation soars. They keep printing it, there is more in circulation, and the cycle goes on.

Here is one of the biggest areas that it affects us typical folk. If your financial advisor told you that you needed $2 Million in the bank to retire comfy at 60 years old and you are 50 today with $1.9 million in retirement savings, you’d think you were about ready and all is good.

However, if the dollar loses value vast enough and inflation set it (which is inevitable), then run to your fianancial advisor in about 5 years, when he tells you that you now need 3.5 million to retire at 60. They moved the bar.

Ironically, this works in reverse and to our benefit for our debt holders (China). If dollars are worth less and there are more of them in circulation, the value of the lien they hold is worth less and easier for the US to pay back. It is often speculated that this is Obama’s plan. Reagan actually did something like this in the mid 1980’s to ease our nations debt to others.

It is a bad thing, anyway you look at it for the individual and the country. The debt we are racking up is not exactly in strategic assets or national commodities. It will not garner any measurable return that will provide for the re-payment of our debt.

[sr4402]

Hi Mikelets456,

My Dave Ramsey ELP Investment guru says 25% in Foreign funds. See http://daveramsey.com on gold.

A wise investor once said, when everyone else is doing something invest elsewhere. Right now everyone is running to Gold, Silver and precious stuff. The results will be that these will go artificially high (like Oil did) and then bust (like oil did) and you will be left with an empty bag.

Be wise instead. The advice of 1/4 in Foreign Funds, 1/4 in bonds, 1/4 in growth stocks, 1/4 in aggressive funds is good advice for your retirement funds like Roths and 401Ks. These are real investments, not in a company but real funds. If the dollar inflates like crazy, your foreign funds will look real good.

Those who invested in aggressive funds since this March have done excessively well, would you like to miss that again? No? Well that is what regular investments in Aggressive will do, you will catch some of that wave when it happens again.

Dave Ramsey says the vast way millionaires got that way is by patient investing and only 2% of the population do it.

He also says every time he reads the book, the Tortoise always wins.

[garykfd]

Here is what you do. Buy guns buy bullets and hoarde things like non perishable foods and things you can't live with out like clothing and warm bedding.. When hyper inflation starts and you cant buy anything cause there is nothing to buy and your money isn't worth anything you need things to trade with.. I personally am stocking up on alcohol (vodka,etc) and cigs and cigars.. you can get whatever you need if you have the right thing to trade

[equalitybeforethelaw]

Just go back and look at prices for the last 50 years. When have run inflation pretty consistently over this period. You don’t find any period where the dollar truly gains value, but just looses it at a slower pace. In 1965 you could buy a new car for $3K. Today you are looking at $25K average. Apples to apples we have seen a lot of inflation. In tens years I would expect an average car to sell for around $35K.

[dalebert]

reply #2 is right ....too many dollars....stop the printing press.

[norraad]

..and the reason for that is the interest bearing loans that feed the beast in the first place.

That's what makes it all right from the "Bankers" point of view.

I saw a college level lecture on this called something about the purposeful destruction of the middle class.

I'm sorry I didn't save it for link purposes, but I'm sure you can find it searching youtube.

The lecturer was a woman and it was a California college as I remember.

[dog breath]

Our currency has become devalued by inflation even worse then people think. I will give you a example, if you went back to 1964 gas was around $0.25 to $0.30 cents and the currency was supported by silver. Gas is still around the same price if not cheaper for if you sold 3 1964 silver dimes you would have the ability to still buy a gallon of gas with some change. If it was not for cheap Chinese goods the sheep would look up and scream.

[DannyTN]

"My question is, are commodities higher because of SPECULATION of a declining dollar? Is it also the old "price and demand theory"? Meaning are the speculators buying up commodities so the price is going up?"

Yes, Yes, and Yes.

You noted that the dollar was stronger than a year ago. Yet commodities have risen in price. So Commodities are stronger against almost ALL currencies.

That can happen for a couple of reasons. All are supply and demand related.

• We have printed more dollars but other currencies have also printed more of their currency. That might be resulting in worldwide inflation, while the dollar remains relatively stable. That is effectively a surplus of dollars/currencies all chasing the same quantity of commodities, which is inflation.
• Speculation could and probably is driving the demand for commodities. But it may not be speculation just against the dollar. Otherwise you would expect the dollar to have fallen vs the other currencies.
• The printing of dollars, in excess of the growth of the population and/or supply of goods in the economy, normally has an inflationary effect. However, this was done in the face of an extraordinary credit contraction which is deflationary. So it remains to be seen whether the bailout and stimulus plans will actually be inflationary.

My view on the actions so far:

• The bailout, which was designed to restore liquidity to the banking system, will not be inflationary. It will only have a short term effect and that effect will be offset by the deflationary factors created by credit markets and consumer fear. Most of those funds will be repaid to the government. And when they are repaid, they will have a deflationary effect that will offset the inflationary effect of the rebounding economy and the return of the credit markets.
• The stimulus plan on the other hand, may well be inflationary. Normally you want to see a stimulus plan go into building infrastructure that will facilitate business or defense and pay the country dividends in one form or the other for years to come. However this stimulus plan had little infrastructure building to it, and a lot of pork and wasteful spending.
• The good news about the wasteful spending is that probably 35% to 50% of it will come back to federal or state goverments in the form of income taxes/sales taxes, etc. So it's bad but not as bad as the raw numbers indicate.
• The bad news is that some of that wasteful spending was designed to create programs that require wasteful spending in the future. Like a free magazine subscription that you either have to cancel or your credit card will be billed automatically next year. The question of course is will we remember to cancel.

[dog breath]

Don't forget also that the Chinese prop up our currency in order to secure a stable market for their goods. If they ever decide not to they can flush us down the toilet at their will.

[biff]

I will answer your question with a simple question:

If every citizen in America had a billion dollars cash, how much would a loaf of bread cost?

[chuckles]

IMHO, the dollar will be worse off because the countries that sell things, like silver and gold, copper, and other minerals will hold up better than we will. Another saving grace will be the countries that actually manufacture things will be able to sell them. We don't do either anymore. I would add commodities to my portfolio, if I were you. Be careful if you don't know what you are doing, you can lose more than you put in. In the near future, we will have food shortages and hyper inflation, so buy ahead of time. I, frankly, am scared of gold and silver because they have been manipulated in the past.( Hunt Brothers).

If things get really hairy, (complete collapse) nothing will matter anymore anyway except beans and bullets. Trying to "think" your way out of complete collapse is just luck. If we don't collapse, commodities will be higher and you can protect yourself somewhat. There will be many "winners" that have their families murdered and their gold taken from them. Maybe even the government doing the taking.( aka FDR's executive order taking gold in 1933).

Enjoy your health care.

[FreeAtlanta]

The real concern? Obviously, RACISM!

[mikelets456]

Well the average cost of a loaf of bread is $2 and the average person makes $40,000. I would guess a loaf of bread would be $60,000. Still is the same percentage....the question is, if everyone had a billion dollars how much would a barrel of oil be?

However, if every country is printing money it is all relevant. However, if China calls loans, stops doing business with us and trashes the dollar....then we are SCREWED more!

Right now I have an ample supply of canned goods, ammo, clothes, property and other non-durable goods for trade or barter. Also, for survival.