Saturday, February 25, 2006

The Fall of the Dollar

Now here's something interesting. According to this article, the officials of the International Monetary Fund IMF have issued a warning that the United States Trade Deficit could trigger the collapse of the dollar very soon. They also said "that the world's big economies were already too dependent on the willingness of American consumers to live beyond their means." Sounds like trouble a-brewin'.

I'm not going to talk much about the IMF because I don't have many facts, or an editor to help me know wether I'm getting it right or not, but I do have strong feelings on the second matter: the willingness of Americans to live beyond our means.

America is the land of plenty, where you can have anything you want, and nowadays that usually means consumer credit.

Start with the house. Some financial planners will advise you not buy a house that will require a mortgage of more than two or three times your annual income. A quick parusal of the real estate listings will show that housing prices are becoming very inflated. I'm particularly interested in Salt Lake City, so I'll use it as an example. Finding a newer home inside the Salt Lake Valley for less than $200K is becoming quite tricky. If everyone operated with the notion that I mentioned before then people would have to be making $70K-$100K per year. That is not the case. There are people that make that much money, infact, its getting easier with inflation, but not in the numbers it would require to keep the major new home builders in business. Therefore, there are more and more people living beyond their means.

Next, let's consider the auto markets. According to, the average price for a new car just broke $30K. That's a lot of money. You have to hand it to the engineers, though. Nobody has a cold butt, the ride is phenomenal, the stereo rocks, and you got leather seats (and for the affluent-appearing types, don't forget the H2). More and more features are going into cars, driving the costs up, up, up. However, don't expect Americans to give up seat warmers in favor of finacial stability. Never underestimate our power to live beyond our means.

Lastly, what about the big box store. I won't name any in particular but I do not differentiate between warehouse stores and other big boxes--big box is big box. These are helping to ensure that America far outconsumes its international neighbors.

A nation's economy is based on a balance between import and export. We are WAY out of balance. Other countries hate us because we live a lifestyle that is so far above theirs, but the irony is that right now, we are supporting everyone's lifestyle in one way or another. And that brings me back to the IMF. The world is now dependent on us to live beyond our means. This sort of arrangement will not last. The Great Depression caused a worldwide economic slowdown and one of the major causes was that too many people bought stocks on credit. The FDIC was instituted to contain major fluctuations like that in the US economy. Once again, credit is being used too much and when everything comes toppling down, the resulting devastation will be a hurricane to the rainshower of The Depression.

I'm doing my part to live within my means, but who really knows what to expect.


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