American in Economic Trouble

Ok...we need to face some facts, as Americans. Our country is great...there's no other country like it. It's also facing some potentially horrible times. Recent polls say that the number one concern of people is the economy. I know that it is my number one fear. There are obviously many concerns, but the economy is at the forefront of many people's minds.

Now I don't want this blog to become about doom and gloom, but I also can't turn away and pretend everything is rosy when it isn't. The economy is something that is complicated, but something that I think is made out to be too complicated...so much so that not many people truly understand what is going on. I won't stand here and pretend that I do understand everything that's going on, but I do believe that things are headed in the wrong direction.

What I plan on doing is taking on small segments so it won't be overwhelming. If we talk about the falling dollar, housing crisis, interest rates, productivity, deficits, etc. in one post, it will be too much. But my hope is that after several segments, people will get a better feel for how those things affect the economy.

So for this post, I just want to talk about the falling dollar and how the Federal Reserve affects it. Now, the Federal Reserve, quoting from it's website "is the central bank of the United States and provides the nation with a safe, flexible, and stable monetary and financial system". The important thing to know is that there is currently little oversight to the Federal Reserve. They are run almost like a corporation, aside from monthly meetings that they have with congress to tell them what they are going to do, but they don't have to take instructions from congress on how to run the national bank.

Among other things, the Federal Reserve has the ability to create/print money, and it is precisely this ability that is creating the falling dollar. This can be explained simply by the law of supply and demand. The more supply there is, the less demand there is for it, and thusly the more the price must lower to create sufficient demand to meet the supply.

Think of it in terms of...oh say...cars. Let's say someone made a car that many people would want...one that very safe, roomy, runs on water, and gives out no pollution. So the manufacturer says that the cars will be selling for $10,000. Initially, everyone wants one, so the price quickly rises to $30,000 based on high demand. Soon, the manufacturer is able to multiply his production of these new cars by ten fold. Before too long, the price on the exact same car would drop down...and let's say that the manufacturer begins producing so many throughout the world, that to sell one, he now has to lower the prict to say $5000, because there is a greater supply of them out there.

That's what's happening to the US Dollar. The Federal Reserve has the ability to, and does, print new money often enough, causing our dollar to fall in value. But in value to what? In value to other country's currency. A country doesn't have to spend as much of their money to exchange it for the US Dollar if the US Dollar is vastly overcirculated. Conversely, we have to spend more of our money in exchange for a currency that isn't being overcirculated.

Why is that a problem? Because now we have to spend more money to buy the same goods produced in other countries. Oh, by the way, most items that you buy on a daily basis is produced in another country. Not good. Has anyone noticed the price we pay for a barrel of oil recently, despite the production of oil having not changed at all?

This is something that the front-runners of the presidential race should be, but aren't, discussing. It's up to us to let them know that they need to develop an economic plan if they want to be elected.