by Robert Griffith

Created on: January 25, 2008

The world-wide comparative value of the American dollar is falling. Why? The answer is not known by many Americans, who are more aware of consumer-side conditions in America which affect them immediately and directly. Yet the fall of the dollar against other currencies reflects a long-term condition which, if not corrected, is likely to end the high standard of living in America and severely reduce, if not eliminate, the American middle class.

There are several factors at work here. First, the trade deficit-think of it as debt-is the largest factor in the dollar's fall. The United States imports than it exports. It sends
more money to other countries than it takes in. Oil imports are the biggest purchase America makes, but consumers buy autos, electronics and food from foreign sources as well. Offshore outsourcing of jobs is another outward-bound money stream. In order to balance this outflow, the US must bring back funds from other countries in the form of loans and investments in an amount in excess of $2 billion every business day. Yes, that's every day.

Some of this incoming investment produces growth and real dollar value. Most, however, pays for government deficit, stock market speculation, and consumer credit lending. The money you spent after refinancing your mortgage came from and went back to other countries. Until recently, consumers in America increased their spending every quarter back to 1987. Loans, in addition to income, supported this spending. These loans created more debt. US household debt is now at a level many consider unsustainable. Inflated housing values produced debt, and falling prices along with widespread loan defaults have pulled down banks and mortgage lenders. More debt. Current intervention by the Fed has propped up the ailing mortgage market, but housing values have dropped, so the influx of mortgage loan investment capital will be short term.

Other developments have contributed to the fall of the dollar. The Enron, WorldCom and Tyco scandals reduced confidence in accounting methods and US government oversight procedures. Foreign investors had less confidence in American stocks, bonds and other investments. They stopped investing and sold off their portfolios. Money began to flow out rather than into the US economy.

Government budget deficits created by tax cuts and military spending have run through the ceiling now, and state and local governments are running high deficits as well. US government unilateral global policies have

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