A Weakened US Dollar
Much debate is taking place between economists about the ramifications of a weakened US Dollar, global prices, and long-term economic stability. Despite their critics, Federal Reserve Chairman Ben Bernanke and Timothy Geithner have taken an aggressive posture that promotes monetary loosening. An increased supply of currency in an economy allows financial institutions to loan money to individuals and businesses that looking to grow or become established.
When global economies were jolted by the collapse of the Lehman Brothers due to poor investments, panic quickly spread throughout the financial world. People were coming to the realization that the surge in global market and commodity prices were in fact the result of a massive, over leveraged bubble among poorly regulated financial institutions. Limited oversight in the mortgage industry in the U.S. housing market contributed greatly to historic recession. Millions of happy home owners were unaware of the fine print in the mortgage contract that included rate hikes. Predatory lenders made sure not to mention these facts to applicants who were simply unfamiliar with the mortgage process.
In response to the market crash in early 2008, financial institutions stopped lending money to both individuals and businesses. In a climate of economic fear, these companies were unwilling to risk loaning funds to others, especially with so many reports of bankruptcy, job losses, and defaults. After bailing out large institutions to stabilize economic institutions, the Federal Reserve and Treasury worked together to avoid deflation and economic stimulation. Despite a stubborn unemployment rate of 8.7%, the U.S. economy is expanding and companies are reporting large profits.
What To Expect
With a weakened US Dollar, global companies will begin to move their manufacturing of goods and services inside the United States. With prices in the United States relatively cheap, many tourists will come to visit. Additionally, many companies that are presently using workers in neighboring countries, such as Canada and Mexico, will likely move their plants to U.S. soil. U.S. companies will enjoy greater revenue than their European peers due to less expensive U.S. products. In summary, the U.S. will be in an expansionary position until the USD appreciates to a healthy equilibrium with other world economies.
Should there be economic global disruptions, such as terrorism, war, natural disasters, or the collapse of the Euro, the Green Back will once again appreciate. Albeit, for a short period of time.