From 
Del.icio.us
Digg
Reddit
Facebook
StumbleUpon
TwitThis
The Declining Dollar
Sure, your dollar buys less today than it did a year ago. Your shopping cart and your gas
gauge have both been telling you that for months now. What's shocking is how fast and how far the dollar has fallen.
In the 12 months between June 2007 and June 2008, the dollar lost nearly 15 percent of its value. That's compared with the euro, the currency used by Germany, France, Italy, and 12 other European countries. Since 2002, the dollar is down 40 percent versus the euro.
A weaker dollar can help American manufacturers, but it means higher prices for imported goods-from everyday items like clothes to major purchases like cars. Where it really hurts is at the gas pump and the grocery store. The decline of the dollar is one reason we're paying more than $4 for both a gallon of gas and a gallon of milk.
Who determines how much the dollar is worth? The policies of the U.S. Federal Reserve Bank (those dollars in your wallet are Federal Reserve notes) and the central banks of other countries have a lot to do with it. But the day-to-day price of the dollar is set by foreign exchange (FX) traders, who buy and sell dollars and other currencies. The roster of FX traders includes major banks, multinational corporations, and wealthy individuals in the United States and in nearly every country around the world.
The daily volume of the FX market is $3.2 trillion, roughly ten times the daily volume of all the world's stock markets combined. Currency trading occurs 24 hours a day, seven days a week. Exchange rates between the dollar and other currencies are like a national financial review-the FX market gives the dollar a thumbs-up or thumbs-down. Over the past six years, the dollar has repeatedly gotten a thumbs-down.
U.S. policymakers now face a dilemma. Should they try to strengthen the dollar? Or will a weaker currency help the economy in the long run?
What Turned the Dollar Into 63 Cents:Budget deficits - The U.S. government has spent more money than it has received in every year since 1971, with the exception of 1998 to 2001. Last year, the federal deficit was $162 billion. As of 2007, the national debt was $9 trillion, more than $2 trillion of which was owed to foreign investors.
Trade deficits - Since 1975, the U.S. has been spending more money to buy foreign imports than it has been taking in from selling American exports. The U.S. trade deficit (total imports minus total exports) is currently averaging almost $60 billion a month, or more than $700 billion a year.
War spending - No one knows how much the U.S. government will ultimately spend in Iraq and Afghan_istan; estimates run as high as $1 trillion. Many economists agree military spending increases the budget deficit and contributes to the rising prices of strategic commodities like oil.
€ vs. $ - By some measures, the European Union surpasses the U.S. in economic power. In 2007 the total annual economic output of the EU was $14.7 trillion, compared with $13.8 trillion for the U.S.; the EU economic growth rate was 3.1 percent versus 2.2 percent for the U.S.
8 Warming Soup Recipes
Video: Expired Foods in Your Supermarket
4 Ways to Strengthen Your Immune System
Joke: The burial service for the elderly woman climaxed with…
Advertisement 
