In the wake of the current financial crisis, we may have to downplay the expression "The Almighty Dollar," even though the dollar represents so much. It's not only the most common denomination of U.S. currency but features the Great Seal of USA and George Washington on the other side. It is not often that one thinks of the dollar like that. So why downplay the dollar, the same dollar that helps poor kids in Africa, the same dollar that portrays a sign of the World's largest capitalist economy? It's not the public that downplayed the dollar, but it's the greedy corporate empires that has put it at risk.
It's put us in a bad position that will determine the dollar's value in the next couple months. The effect of the $700 billion bailout package, and how it is used over the next few years, will significantly impact the dollar's value. It will impact the net worth of the average citizen's bank account, retirement money, and accumulative savings. There are so many areas to keep a close eye, that it would be easier to identify the two ways that the dollar will be affected. Because the $700 billion bailout package is not based from the taxpayer alone, but it's also printed money, and that can affect the value of the dollar dramatically.
1. The government has no choice but to buy poor-performing mortgage assets because the banks can't do it. Pay attention to the buying price.
In the next few months, the government will pay for complex mortgage back securities that have plunged as a result of the financial crisis. It's so bad that it's been compared to the Great Depression, and is the worst slump in real estate in decades. The government is now faced with the decision on what price they will buy back estate assets from Financial firms. A process being considered is the reverse auction, where financial firms that sell their assets for less money win, and get the hard cash.
Remember that the government uses the tax money to buy back these assets. As any prudent investor knows, the lower the buying price for a home the better it is for the value of the dollar. It is a simple concept of inflation/deflation. Make sure that senators and congressmen buy those assets for as little as possible, which will mark up the value of those bank accounts. If we buy high it only helps the Wall Street, not main Street.
How does this process work? If you buy a bag of sweets for $10 instead of $100, it doesn't mean that the bag of sweets is worth more at $100 than at $10. It means that $10 is enough to buy a bag of sweets. IF you allow the government to buy sweets for $100, the bank accounts of the average citizen will deflate instantly.
2. The amount of equity that the government takes in from participating companies in the bailout package will affect the value of the dollar.
When the government agreed to pass the $700 billion bailout package, it placed a limit on the compensation that these firms get for participating in the bailout program. It also gave the government the power to take equity from participating companies such that the taxpayer benefits if the financial firms return to health, which they will. The government must take as much equity as possible.
These companies don't really have any other alternative choices, but they will get greedy again. They will fight so that they give up as little of their company as possible. They have no right; this bailout fund doesn't come without strings attached. In order to preserve the value of the dollar the government must get the largest percentage of the companies they bail out.
