Why A Weak Dollar Will Affect You
So as I sit here tonight reading and thinking about the state of our world I got to looking at the US Dollar Index charts and came up with a theory that I felt I should share with you.
The US Dollar is in the process of crashing and has been for some time now. We had a blip in the dollar during the scare last fall and winter as people got out of stocks and commodities and parked their wealth in US Dollars. Now that people realize there is no possible way we could ever have sustained deflation due to the expansion in money supply they are now fleeing from the dollar and back into real hard assets.
To the normal person sitting at home reading this wonders what does this have to do with my everyday life? Why should I give a rat’s ass about the US Dollar Index? How could a weaker dollar ever affect me? Well, I will give you a few examples as to why and how it will affect you and every other Joe Suburb in America.
When the dollar losses value is does not mean that you can all of a sudden not buy anything with your dollars it just means you can buy less with your dollars. It means that if you made $100,000 and the dollar drops 10% you would basically need to make $110,000 to buy the same items the next year. If you take any raw commodity and overlay its chart with the US Dollar Index chart you will get a near perfect inverse. What this means is that as the dollar goes up commodities go down; as the dollar goes down commodities go up.
Why should Joe Suburb worry about commodities? Commodities are all of the basic things you use in everyday life, most importantly gas, food, water, electricity, lumber, rubber, copper, etc. As everyone has been listening to the talking heads preach about how we are headed to recovery they have not noticed that oil has doubled in price the past year!!!! So I really don’t care if the Dow is up 20, 30, and 40 percent!!! The most basic commodity that we need for life as we know it went up 100% and I see no reason why it will not continue to rise as the US Dollar falls.
The most common argument I get is that “We don’t drive as much as we use to so higher oil prices will not affect me.” Double LOL!!!!! Do we realize that every single stinking thing we consume, buy or need is transported to us on truck? That if oil goes up it raises shipping rates and in turn raises prices you pay for items? That not only does shipping raise prices but a drop in the US Dollar also raises the prices of all basic raw commodities including food, which in turn double dips you with increased prices twice!!!
Here is what I am talking about folks; the following are some examples for you on how the US Dollar Index affects your life.
1) The US Dollar Index has dropped 18.699% over the past 4 years. In very simple terms this means that if you had $60,000/year job in 2005, you now need to be making $71,219.40/year to consume the same about and same quality of goods you consumed in 2005.
2) We are not at the lowest levels we have seen the past 4 years though. In April 2008 the US Dollar index was 22.575% off of its highs set in Nov. 2005. I see zero reason why we will not get to the lows set in 2008 soon. We are only 4% away from those levels now. The US Dollar Index has dropped 16.856% since March 2009 so the trend line does not look real promising. (It does not take a Ivy League grad to assume the dollar will go down in value when the supply has more than doubled)
3) Gold has risen in price 140% since 2005 to current record levels of $1200/ounce!!!
4) Silver has risen 216% since 2005.
5) Oil has risen 160% since 2003
To wrap it up in a nut shell, I have been saying that the coming inflation is inevitable and will hit Joe Suburb the hardest since he has no hedge against it. Farmers and other raw material producing people will be fine because they have a natural hedge built in for inflation. When the dollar goes down corn goes up so I have no worries but as you can see that when the dollar goes down at the rates it has been Joe Suburbs salary does not increase fast enough to keep up with it. Not to mention that his salary does not increase near fast enough to keep up with the rise in raw commodities.
Below are a few charts that show the inverse with the US Dollar index and few raw commodities.
