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Will a falling Dollar derail your plans for retirement? Finance Articles | June 4 Pavel Zacha Devils Jersey , 2005
By now we are all familiar with the decreasing value of the US dollar. What you don't know about this situation could hurt you. Learn why this is happening, what the implications are for your retirement portfolios, and what you can do today to protect investment assets that you have spent a lifetime creating.


How much are you willing to pay for a tank of gas? We?ve all watched as gas prices hit record highs, but what would you do if you filled your tank and paid by credit card only to discover on your monthly statement that you paid $80 to fill an economy car. No Cory Schneider Devils Jersey , this is not some future doomsday projection of oil prices. This scenario recently happened to a colleague on business in Europe.


You?re not planning a trip to Europe, so you ask, ?Who cares?? Well, the consequences of a weakening dollar are not limited to overseas transactions. It?s important for you to know exactly how the declining US currency affects Americans state-side.


What does this mean to you?


The US dollar is considered the world trading currency. This means that most goods and services are priced in US dollars. Any prolonged weakness will cause countries trading with the US to raise their prices in anticipation of further decline. Many commodities such as Kyle Palmieri Devils Jersey , oil, coffee, chromium, copper Drew Stafford Devils Jersey , and iron have already set record prices due to the decline in the dollar. As the prices for foreign imported goods increase, so do the prices for the raw materials and parts used by US businesses. As a result, the price will also increase on all goods produced within the US. In short, Americans will pay more and receive less.


This economic effect is known as inflation and its impact is particularly devastating to retirement and savings portfolios. This decline in the US dollar means a reduction in the purchasing power of the dollar and a corresponding reduction in the standard of living for those who earn Patrick Maroon Devils Jersey , spend and save US dollars. In short, a weaker dollar means that Americans will work harder for less.


What is going on with the US $?


In December of 2004, the dollar hit an all time low against the euro at $1.3667. This was down sharply from $1.20 in September of 2004. (Source: Associated Press MSNBC, December 30 John Moore Devils Jersey , 2004)


The Euro isn?t the only currency rising against a falling dollar. The Australian dollar is trading at six month highs and the Japanese Yen is near its highest trading rate in 8 months. The Canadian Dollar has just moved to multiyear highs against the US currency. (Source: Jubak TheStreet, November 10, 2004)


Foreign investors are closely watching the huge US deficits in the federal budget and trade accounts. According to the Commerce Department the trade deficit of the USA was $618 billion in 2004. The Congressional Budget office projects a $400 billion budget deficit for 2005 and the current US national debt is nearly $7.7 trillion.


Budget deficit = spending more than tax revenues collected.


Trade deficit = buying more imports than you sell exports.


National debt = Accumulated deficits + accumulated off?budget surpluses


CRN 0503-1256


A major cause of the current deficit is the result of increased growth rates in the U.S. When the U.S. grows faster than other world economies, we consume far more goods and services from overseas than they consume from us. This creates the imbalance in our trade accounts that we are experiencing today.


We also need to be mindful of the effects that the flow of foreign investment dollars into the US has on our economy. The US markets had a larger return on capital than Europe or Japan for the last 20 years. Foreign governments such as China and Japan have also purchased large amounts of US Treasury securities as a reserve Marcus Johansson Jersey , in order to back their own currencies and guard against the dollar from falling too fast and hurting their economy.


Worldwide currency traders recognize these trends. And investors view the increased spending on the war in Iraq, the massive cuts in tax revenues and the possibility of Social Security privatization as signs that budget and trade deficits will continue to escalate.