Over the last year, the dollar has crept down 12.5% against the euro. Good luck taking that Spanish vacation with a rate drop like that. Many doomsayers and pundits are predicting a second Great Depression with this troubling news. Of course, they need their ratings, and hysteria gets views, whether in public or on TV.
But they’re not totally wrong. A weak dollar signifies something that the federal government has assured us to be a myth – that the economy is in another decline. A currency’s strength is often used as a barometer for an economy’s strength, and there are several reasons to believe that the U.S. economy in its current state is being propped up artificially and is likely to suffer an even worse fate.
Firstly, the national debt has never been as high in history as it is right now. Let’s take a look at this nice, shiny graph. We are approaching the level of debt that we maintained during World War II. The reason for this is several-fold (yep, there tend to be a lot of reasons for everything with the government), but I’ll cover the two main ones here. The largest recent contributor to the debt is the Bush-era tax cuts, which were meant to be temporary. However, they have effectively become a permanent part of the budget, and congress has continued to increase spending like a trophy wife with a platinum card limit. The reason this has hurt the dollar is because of investors who view the United States government as a potential investment. U.S. government bonds have traditionally been (and likely still are) the safest investment in the world.
Secondly, the economy is in trouble, plain and simple. I know, we all heard the announcements of “the recession is over!” months ago. So how can this be? The Federal Reserve has been keeping the economy going artificially by cutting interest rates to the lowest they can go. This was done to spur investment and growth, but it has not yet worked because everyone still fears for the safety of their investments.
With the increase in debt and no way to pay it back coupled with an economy that refuses to restart despite bottomed-out interest rates, it is difficult to see how anything but inflation could eventually occur. Thus, investors both private firms and foreign governments, increasingly view the United States government as a poor investment and are moving their money to greener pastures. This results in an increase in the money supply as the investors sell their U.S. bonds and assets, which creates inflation and a lower dollar value.
You may be asking yourself how we got into this mess in the first place. The answer is pretty simple: corruption and corporate greed. Mis-management on Wall Street coupled with willfully branding bad financial products as high-quality led to the collapse of several major firms, and the near-collapse of many others. In most walks of life, failure is rewarded with nothing. But Wall Street is a magical place! Failure there was rewarded with a $700 billion relief program called TARP, and according to the Wall Street bailout cost table, many more hand-holdings that the government doesn’t like to talk about that add up to trillions (yes, with a “T”) of dollars. To top it all off, managers at these mismanaged institutions gave themselves and their loyal workers bonuses of hundreds of thousands or millions of taxpayer dollars. This amounts to the greatest monetary fraud in history, where these financial institutions have managed to worm themselves so deeply into the flesh of the American (and world) economy that they were rescued by good old Uncle Sam so as to keep the nation from collapsing. That’s Corporacracy for you.