The dollar declines when it loses value in relationship to foreign currencies. When this happens, the dollar can buy fewer foreign goods, increasing the price for imports and causing inflation. In addition, investors in U.S. Treasury bonds will sell their dollar-denominated holdings.
Latest News
- March 28, 2011 - Despite a $250 billion rebuilding cost, Japan doesn't need to sell its U.S. Treasury holdings to reconstruct after its earthquake/tsunami/nuclear disaster.
- October 25, 2010 - G-20 Meeting Drives Stocks Up, Dollar Down
- June 21, 2010 - Is the Dollar Losing Its Grip?
- October 22, 2009 - Will Plummeting Dollar Drive Up Oil Prices?
- October 12, 2009 - Central Bank Stampede Drives Down Dollar
- September 30, 2009 - World Bank Head Calls for New Global Currency
- September 23, 2009 - Could a Dollar Decline Drive Dow to 14,000 in 2010?
- August 25, 2009 - How Much of Dow Rally Is Due to Dollar Decline?
- April 30, 2009 - Could a World Currency Replace the Dollar?
- June 21, 2009When the Dollar Declines Should You Buy Gold>
- March 13, 2009 - Is China Threatening to Sell U.S. Treasuries?
Background
In 2008, the current account deficit was $700 billion. Over half of the current account deficit is owed to foreign countries and hedge funds. (Source: U.S. Treasury Dept.)Partly as a result of this deficit, the dollar declined 40% between 2002-2008. The dollar strengthened during the recession, as investors sought a relatively safe haven. Since March 2009, however, the dollar has resumed its decline. This is a result of the $14 trillion U.S. debt. Creditor nations, like China and Japan worry that the U.S. government won't really support the value of dollar. Why not? A weaker dollar means that the deficit will not cost the government as much to pay back. Creditor have been gradually changing their assets to other currencies to stem their losses. Many fear that this could turn into a run on the dollar. This would quickly erode the value of your U.S. investments, while increasing inflation.(See Could U.S. Lose Triple AAA Debt Rating?)
