Growing Concern As Greenback Continues to Decline

The US dollar is, to put it bluntly, taking an absolute beating right now.

Over the past 6-7 months, the greenback has slumped approximately 10% and 20% against the Japanese Yen and Euro respectively. The USD has also dropped around 17% against the Canadian loonie, and around 40% against the Australian dollar.

Mild concern is now starting to turn into something more as the greenback slowly loses value on an almost daily basis.

I wouldn't say that we have reached the "panic" stage as of yet, but we are certainly starting to get close.

The US currency is being besieged from many different angles right now.

There is talk of the United States dollar losing its status as the world's reserve currency.

There are rumors of a consortium of countries, including China and Russia, that would be looking to stop using the US currency for oil trading, instead moving to a "basket of currencies" that would include the Chinese Yuan and the Japanese Yen.

The main problem that the United States dollar currently faces is the staggering amount of deficit spending that the US plans on undertaking over the next decade.

Deficits stretch as far as the eye can see, and by the end of 2020, the United States is expected to have around $20 trillion dollars in total debt.

Trillion dollar plus budget deficits and rising debt loads aren't innocuous. They aren't just big numbers that will be forgotten about in a few years - they have a dramatic impact on a number of different things, including the relative value of the dollar.

As the United States continues to post large deficits, the value of the dollar should continue to drop.

If foreign investors start to legitimately wonder if the United States can avoid buckling under its mounting debt load, then the dollar will drop.

If the Federal Reserve continues to print dollars to purchase debt, then the dollar will drop.

Many claim to support the notion of a strong US dollar, but this won't occur until the country gets a handle on its out-of-control deficit spending.

Sure, the United States was forced to spend heavily to stabilize their economy in the face of the worst economic decline since the "Great Depression", however, there are also consequences for throwing so much money at the problem, and we are starting to see one of the symptoms today - a declining US dollar.

As long as the United States continues to post trillion dollar deficits (or close to it), the US dollar should continue to remain under pressure.

Source: U.S. Debt Clock

Photo: Photo8.com

Filed under: The Economic Meltdown