What inflation is doing to the dollar
59The dollar.
The US Dollar is used world over as a "safe currency". The nation of Ecuador, for example, is standardized to the dollar. You can go anywhere in the world, and if you have dollars in your pocket, you're good. At the least, you can trade them in easily. Its a luxury that being on top has given us, at least until now.
What we're noting now is that the dollar is being rapidly devalued. Dipping below the Yen and the Euro, it is now not the safe haven that it always has been. Devaluation occurs based on several factors, the biggest part of which is confidence in the currency. Right now, the government is out of money. Which isn't a new thing, its just whats in the news today. But, whats different about right now is that The Fed is printing out paper like none other. Thus, creating further inflation. Inflation is simply defined as when prices rise. In this case, I'm referring to a specific cause, and the biggest cause right now; government issuance of more currency.
What's happening now is, because the Fed is printing more money, there is more currency in circulation than there was. That causes the value of the individual dollar in my pocket to drop, marginally. That value is what, effectively, is being used to make the new printed money have value. So, in actuality, for every dollar the Fed prints, they are stealing a dollar from the holders of the currency.
This is the primary problem with printing money. You're not gaining anything, the money is just changing hands without the taxpayers having to approve of it. Which is not only insane. Its theft.
Thats the primary consequence of inflation. Price increase due to devaluation.
But devaluation. Our currency is only measured in value to other currencies. When our currency inflates, it not only devalues the individual, but changes business incentives. Now, instead of a strong dollar being 1.3 to the Euro, its 1.35, your business dynamic changes. Its better for us to sell to Europe, and better for them to buy from us, because we are comparatively cheaper than we were. But look at China. Because China's currency was less valuable than the dollar, and is now a little more valuable in comparison, it becomes marginally more expensive for company's to operate in China. Which can be a good thing for the US.
Final thought. The more our currency devalues in favor of havens like gold, or even Euros, the less of a haven our currency becomes for investors, and therefore the less stable. We've been afforded, as Americans, a very long period of growth and stability. But if the government insists on covering its absurd spending plans with fiat money, we will inevitably lose that. And thats not something we want to lose.
Economics
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