Why The Dollar Sucks
Okay, so I’m going to talk about economics here a tiny bit. Please don’t run away screaming yet. I had the same reaction to this crap in college, so I promise not to make this painful. But I’m writing it because it’s the easiest way I’ve come up with to answer a few very related questions that people keep asking me about oil prices and wages and exchange rates and all that other kind of prickly economic brain soup. So I’m going to start with a very simple analogy that everyone reading this post can understand – and probably has some personal experience with. It’s not a perfect analogy, and some of the gritty details are different, but in laymans’ terms, it works.
Odds are, either you or someone you know has debt. Maybe it’s on a credit card, maybe it’s a student loan, maybe it’s an underpaid mortgage. But you probably have at least one friend or relative that’s in debt, if you are not in debt yourself. And being in debt sucks, for more than just the obvious reasons.
Sure, it means you are bleeding money. But it also affects your credit. If you have too much debt, you know that any time you want credit, it’s going to be at an exorbinent rate. Forget buying a home, you probably can’t even finance a car if you’re carrying a sizable chunk of debt. And if you do manage to get a loan or a credit card, you’re looking at interest rates that are just absurd (a friend of mine was lucky – lucky – to get 18.7%). Basically, the lesson is that when you owe money, your credit is no good.
Well here comes the logic. Because money is really just credit. I know we don’t think about it that way, but then again, we all trade in dollars in America. Inside of one’s own country, we don’t think of our currency as credit checked against the nation that prints the money. It’s just, you know, money. But what is that money worth? A long time ago, it was worth a certain weight in gold. But it hasn’t been that way for a very long time now, and we couldn’t go back to the gold standard if we wanted to. No, an American Dollar is worth a tiny little sliver of the American economy itself. That is where its value comes from. It is essentially global credit.
And if you understand that dollars are credit, then you should also understand that when America racks up a metric fuckton of debt (up to $9 trillion from $4.5 trillion in six short years), our credit goes to hell. So countries that use other currencies are looking at our dollar and saying, “Geez, that’s just not worth what it used to be worth.” And that messes up our exchange rate. The British pound and the Euro are now worth much more than a dollar. The Canadian dollar is now exactly even with the American dollar, while it used to be worth far less. And the truth is that it still is worth the same amount, roughly, compared to other currencies. We’re just in the tank.
Since all oil in the world is traded in American dollars, this is also part of the reason that the price of oil per barrel is going so high (there are other reasons, make no mistake, but this is one of them). As dollars become worth less, it takes more of them to buy the same amount of stuff. And that goes for other goods as well. Every time America borrows against its credit, the dollars in your wallet become worth ever so slightly less. 100 bucks is 100 bucks no matter what the value of the dollar is, but how much stuff you can buy with 100 bucks changes based on our imaginary global credit rating.
The other problem is that, since foreign currencies are worth more compared to the dollar than they used to be, it makes it easier for foreign entities to buy us out, lock stock and barrel. I don’t want to go off on some xenophobic Main Street USA jingogasmic rant, but at the same time I’m not so keen on America becoming a financial subsidiary of China or Saudi Arabia – or any other country for that matter. The dollar sucks because we devalued it. Because we keep on borrowing and borrowing against our own credit. And if we don’t get that back under control before the American dollar stops being the defacto currency for trading barrels of oil, our economy will never recover.
What I’m saying is that reducing the national debt is a matter of national security. I know there are no tanks and bombs and scary old dudes with beards living in caves. And I know national security is way more fun when the key player is Jack Bauer than when it’s Alan Greenspan. But we still have to deal with this shit, because whether it’s boring or not, it’s taking more money out of your paycheck than the IRS ever could. And it’s bad news for America.
Sure, there are obviously negative sides to the inflation (your purchase power decreases and life becomes more expensive unless your pay rises the same percentage as the inflation), but there could be good news, too. If the dollar loses worth, then that includes fictional dollars, which means debts. That’s great for anyone who has large debts, including the government. Bush’s deficit could be cleared out substantially within the coming years.
That holds true as long as wages are adjusted to reflect the new, lower value of the dollar. Someone making $500 a week still makes $500 a week, regardless of how much that is in Euros. So if wages stay the same, then the cost of what they need to buy in terms of food, clothing, shelter, and internet access increase because those are universal commodities. However, if because of the shift in the dollar’s worth, that same person actually gets a raise up to $700 a week, then yes. It makes it easier to pay down his own debt.
I’ll start checking my weekly paycheck. >.>;
actually my old job had to do a 20% payraise because the throughput was just too high. Still wasn’t worth my time.
Even burger joints START at 7 dollars an hour here. 2 years ago that number was between 5.50 and 6. My point? None, just felt like chiming in, sorry.
Yeah, the minimum wage finally went up nationally. It was a fight to get it, and it still didn’t move remotely in step with the dollar itself. I mean, hell, in Jersey in the late 90s, minimum was $5.15. Even as a 17 year old, I realized that was Crap Lite. A generation and a half ago, one worker could support a family on minimum wage. That was how we built a middle class.