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The Value of the Dollar

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 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 US currency but features the Great Seal of the 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 have 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 impact the dollar's value hugely. 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 on that it would be easier to identify the 2 ways that the dollar will be affected. Because the 700 billion dollar bailout package is not based on funds 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 up for complex mortgage backed 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 called the worst slump in real estate in decades. The government is now faced with a decision- on what price will they 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 tax money to buy back these assets. As any prudent investor knows, the lower the buying price for an estate 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 Wall Street, not Main Street.

How does this process work, you may ask? Well, if you buy a bag of sweets for 10 dollars instead of 100 dollars, it doesn't mean that the bag of sweets is worth more at 100 dollars than at 10 dollars.  It means that 10 dollars is enough to buy a bag of sweets, as opposed to 100 dollars. IF you allow the government to buy sweets for 100 dollars 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 dollar bailout package, they 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 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.

Bio: I'm a high school student in HKIS, a sophomore who would like to contribute some writing pieces to OPEDnews.
What goes up, must come down. (but not me, fool) 

 

www.abqmurals.com

Richard W. Overfield is an artist/writer currently based in New Mexico after living in Vancouver, Canada for 20 years.His paintings are represented in over 300 public & private collections in the U.S., Canada, Switzerland, France, England, Japan & (more...)
 

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with an astute understanding of economics. You hav... by Ferdinand on Sunday, Dec 14, 2008 at 10:43:01 PM