Weak Dollar - why?

[Milehimama]

I keep hearing over and over again about the weak dollar, the weakening US currency, and the dollar falling again.

Can someone explain in plain english WHY the dollar is weakening?

Thanks!

[rstlne]

The Chicago Federal Reserve Bank has an explanation here:
http://www.chicagofed.org/consumer_i...eak_dollar.cfm

Here's a summary of factors from their page:

Factors Contributing to a Strong Currency

* Higher interest rates in home country than abroad
* Lower rates of inflation
* A domestic trade surplus relative to other countries
* A large, consistent government deficit crowding out domestic borrowing
* Political or military unrest in other countries
* A strong domestic financial market
* Strong domestic economy/weaker foreign economies
* No record of default on government debt
* Sound monetary policy aimed at price stability.

Factors Contributing to a Weak Currency

* Lower interest rates in home country than abroad
* Higher rates of inflation
* A domestic trade deficit relative to other countries
* A consistent government surplus
* Relative political/military stability in other countries
* A collapsing domestic financial market
* Weak domestic economy/stronger foreign economies
* Frequent or recent default on government debt
* Monetary policy that frequently changes objectives.

As usual though, the Federal Reserve downplays the effect of monetary policy on currency value because any fallout from that is entirely their fault. The last item is actually pretty important. Large increases in money supply cause inflation and lower the value of the dollar because there are more dollars chasing the same goods and services.

[Milehimama]

Can someone elaborate more on the "whys"?

Why does political stability in other countries cause the dollar to slide?

A consistent government surplus

This totally confuses me.. a government surplus should strengthen the economy, right? Sigh. I need help with basic economics here.

A collapsing domestic financial market

How exactly does that affect it? What does that mean?

Weak domestic economy/stronger foreign economies

Is this a cause, or an effect? Wouldn't the EFFECT of a weakened dollar cause a weak domestic economy?

[starshard0]

An easy explanation is that the Government is issuing more money then they can back up with their credit. Many years ago you could trade in a dollar for it's worth in gold. Cash is no longer backed by anything other than the word of the government that issues it. Needless to say, if no one believes the government, then the dollar becomes worth less.

[spencer]

It is all very simple. They are printing $ as crazy, and more and more money are chasing the same amount of goods. This makes everything more expensive in terms of dollars. I guess most people know that the intrinsic value of any fiat currency is close to zero, and that's the direction we are headed.

[Lisa23]

part of it is our national debt. It's over the top!

[cindybythesea]

I think rstlne pretty much summed it up in a nutshell. Sad thing is it sounds like it's going to get worse before it will get better.

[Jason830]

I agree...its definitely getting worse way before it is getting better.