Currency devaluation

[Lowdown3]

How would they do this? COULD they do this? Heard a lot of talk about it. Hopefully some of our more economically minded folks can chime in with some answers.

[eeyore]

They are doing it now through inflation. In history it was done primarily two ways, either through hyper-inflation and through printing new currency.,

[Tofu]

The most obvious is the FED keeps printing money and yes they will. Fact of the matter is that the American economy has collapsed 5 times since WWI. Everytime they change the way our currency essentially works (i.e. go off the gold standard) there are those in power that are always in a position to prosper over the change. These are the folks that are buying up hughe tracts of land at bargin basement prices, when the economy turns around they will sell the land and make a fortune.

[2682nscovell]

The most obvious is the FED keeps printing money and yes they will. Fact of the matter is that the American economy has collapsed 5 times since WWI. Everytime they change the way our currency essentially works (i.e. go off the gold standard) there are those in power that are always in a position to prosper over the change. These are the folks that are buying up hughe tracts of land at bargin basement prices, when the economy turns around they will sell the land and make a fortune.

Also don't forget that the EVIL dogs on wallstreet react to everything the FED does. The more they print and decrease the value the more wallstreet reacts in a negative way.

[arcangel911]

Lowdown3- sadly, yes they can.

When Nixon took us off the gold standard, our money began to loose value then. If you notice on a dollar bill, it says federal reserve note. Which means, that the government basically owes you money.

However, I am still trying to find the fine print that states that my dollar bill is refundable in case of collapse.

[Matt In Oklahoma]

However, I am still trying to find the fine print that states that my dollar bill is refundable in case of collapse.

No garauntees for sure but I think that if it is like other fallen countries the dollar will be replaced with a new currency and refunded at a much lower rate, usually around 6-1 or 10-1 combined with hyperinflation of products. Several of the guys at work had bought dinars back at the start of the war which is a war collasped money. They all think it can be refunded soon, I dunno anything about that, but they about passed out when I used it as an example of what will happen when the dollar collapses during todays conversation. The light bulb came on and worried them.
I pray everyday that I am wrong and I kick myself for turning a blind eye to it for so many years. As we prepare to borrow more money for the "ceiling" the currency will continue to drop as well. I think we are around .45 cents borrowed on every dollar we spend now. I can't imagine running my household like that, borrowing 1/2 of what I spend.

[monkeybird]

http://www.newyorkfed.org/aboutthefe...int/fed38.html

Currency Devaluation and Revaluation

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Under a fixed exchange rate system, devaluation and revaluation are official changes in the value of a country's currency relative to other currencies. Under a floating exchange rate system, market forces generate changes in the value of the currency, known as currency depreciation or appreciation.
In a fixed exchange rate system, both devaluation and revaluation can be conducted by policymakers, usually motivated by market pressures.
The charter of the International Monetary Fund (IMF) directs policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members."
At the Bretton Woods Conference in July 1944, international leaders sought to insure a stable post-war international economic environment by creating a fixed exchange rate system. The United States played a leading role in the new arrangement, with the value of other currencies fixed in relation to the dollar and the value of the dollar fixed in terms of gold—$35 an ounce. Following the Bretton Woods agreement, the United States authorities took actions to hold down the growth of foreign central bank dollar reserves to reduce the pressure for conversion of official dollar holdings into gold.

During the mid- to late-1960s, the United States experienced a period of rising inflation. Because currencies could not fluctuate to reflect the shift in relative macroeconomic conditions between the United States and other nations, the system of fixed exchange rates came under pressure.

In 1973, the United States officially ended its adherence to the gold standard. Many other industrialized nations also switched from a system of fixed exchange rates to a system of floating rates. Since 1973, exchange rates for most industrialized countries have floated, or fluctuated, according to the supply of and demand for different currencies in international markets. An increase in the value of a currency is known as appreciation, and a decrease as depreciation. Some countries and some groups of countries, however, continue to use fixed exchange rates to help to achieve economic goals, such as price stability.

Under a fixed exchange rate system, only a decision by a country's government or monetary authority can alter the official value of the currency. Governments do, occasionally, take such measures, often in response to unusual market pressures. Devaluation, the deliberate downward adjustment in the official exchange rate, reduces the currency's value; in contrast, a revaluation is an upward change in the currency's value.

For example, suppose a government has set 10 units of its currency equal to one dollar. To devalue, it might announce that from now on 20 of its currency units will be equal to one dollar. This would make its currency half as expensive to Americans, and the U.S. dollar twice as expensive in the devaluing country. To revalue, the government might change the rate from 10 units to one dollar to five units to one dollar; this would make the currency twice as expensive to Americans, and the dollar half as costly at home.

Under What Circumstances Might a Country Devalue?
When a government devalues its currency, it is often because the interaction of market forces and policy decisions has made the currency's fixed exchange rate untenable. In order to sustain a fixed exchange rate, a country must have sufficient foreign exchange reserves, often dollars, and be willing to spend them, to purchase all offers of its currency at the established exchange rate. When a country is unable or unwilling to do so, then it must devalue its currency to a level that it is able and willing to support with its foreign exchange reserves.

A key effect of devaluation is that it makes the domestic currency cheaper relative to other currencies. There are two implications of a devaluation. First, devaluation makes the country's exports relatively less expensive for foreigners. Second, the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country's exports and decrease imports, and may therefore help to reduce the current account deficit.

There are other policy issues that might lead a country to change its fixed exchange rate. For example, rather than implementing unpopular fiscal spending policies, a government might try to use devaluation to boost aggregate demand in the economy in an effort to fight unemployment. Revaluation, which makes a currency more expensive, might be undertaken in an effort to reduce a current account surplus, where exports exceed imports, or to attempt to contain inflationary pressures.

Effects of Devaluation
A significant danger is that by increasing the price of imports and stimulating greater demand for domestic products, devaluation can aggravate inflation. If this happens, the government may have to raise interest rates to control inflation, but at the cost of slower economic growth.

Another risk of devaluation is psychological. To the extent that devaluation is viewed as a sign of economic weakness, the creditworthiness of the nation may be jeopardized. Thus, devaluation may dampen investor confidence in the country's economy and hurt the country's ability to secure foreign investment.

Another possible consequence is a round of successive devaluations. For instance, trading partners may become concerned that a devaluation might negatively affect their own export industries. Neighboring countries might devalue their own currencies to offset the effects of their trading partner's devaluation. Such "beggar thy neighbor" policies tend to exacerbate economic difficulties by creating instability in broader financial markets.

Since the 1930s, various international organizations such as the International Monetary Fund (IMF) have been established to help nations coordinate their trade and foreign exchange policies and thereby avoid successive rounds of devaluation and retaliation. The 1976 revision of Article IV of the IMF charter encourages policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members." With this revision, the IMF also set forth each member nation's right to freely choose an exchange rate

The Federal Reserve itself published the above article. So, if market conditions continue to pressure the dollar, the policy makers (whoever they are) can opt to devalue the U.S. Dollar.

[1Admin]

I understand about FRN's, the Fed, fiat currency, all that.

What I'm asking is the actual mechanics, the meat and potatoes of HOW they could devalue the currency in a short period of time.

Heard a guy on American Family radio network a couple times, just bits and pieces of the show while out working. He made it out like it would be something the gubmint would do over a short period of time- i.e, "Thursday your back account will show $1,000. and then on Monday $750." without you doing anything with the $250. type of deal.

He advised storing "2 weeks" of food (you know I was smiling and shaking my head at that) because "the stores will be closed for a few days" somehow because of his changeover, etc.

I need to see if their is an archive of the show, last one was about a week/ten days ago and the first one was approximately a month ago.

Obviously the guy is short sided on his "preps" but I found it interesting that on a mainstream Christian radio show talk of economic problems, etc. of that magnitude was even happening.

Thoughts on a quick devaluation?

[2682nscovell]

Dont they devalue the money by printing more of it?

[Matt In Oklahoma]

The only thing I can think of is not action but inaction. In other words refusal of the gov to react to whatever is devaluing the dollar and allowing it to happen. I really dunno, i'm just not smart enough to stay ahead of everything.

[Mikeg175]

Devaluation is when your money buys a lot less of what it used to be , like inflation . I think it also means the govt will start printing more 100$ bills , so when you go buy something it will cost 75$ vs 25$ and they just make more money to cover it . You can find the ( I think ) Zimbabwe 10000000000$ bill that they used when they devalued their money , or you can find pictures of people bringing wheelbarrows of bills to go grocery shopping . Your salary might remain the same or get a matching raise , but once it hits a certain level the govt will decide to change currencies . They could totally blow our dollar value out , then decide to start using Euro's or something . Then when they run that into the ground , go back to using an American dollar again !!

[Bearman202]

They devalue the dollar mostly by printing too many of them. Actually, the don't actually print money now, they just make the numbers appear on a computer screen. What will happen is that our debtor nations, such as China, will announce that the dollar isn't worth what it once was, and demand more of them for the products they ship to us. The widget that used to cost $1 will now cost 2. In that case, your money is worth exactly half what it used to be worth. Keep in mind that ANY mode of exchange is worth exactly what you agree it will be worth. For example, right now an ounce of gold is worth $14xx. It's worth that because that's what someone is willing to give you in exchange for it. If everyone suddenly decided that the ounce of gold is now worth $1, and that's all they were willing to trade for it, then the value of the ounce of gold is $1. It's all about a mutual agreement as to value. Our dollars are worth what they're worth because we've all agreed that we will exchange x for them. They have no intrinsic value at all. That's one of the best arguments I've ever heard about spending the money right now and buying tangibles, such as food. Food, etc. has value TO YOU, and by extension, to someone else. We all have to have food, we don't all have to have gold. Heck, there have been days that I got by with no gold at all....:-)

[monkeybird]

http://www.iamthewitness.com/books/W...ney%20Dies.pdf

I linked to this article before. However, when talking about devaluing the dollar, nothing gives the road map of how and why it happens like this work. It reads like the future of our Republic.

[2682nscovell]

The perfect example of currency devaluation is the need to pennies, nickels and dimes.

[tarheelsman71]

Here is the issue. The US is the world reserve currency. For example when germany want to buy oil from saudi arabia, they exchange their currency into US dollars and buy the oil. Since we are printing the currency like crazy it devalues our currency making things that we pay for more expensive....oil, cotton, etc. When our currency is not the world reserve currency we will have a wonderful zimbabwe/weimar experience. There is no magic "fix" or undo button. We are past the point of no return. We would have to slash and burn just about every government program to get the ship righted but it would take years and none of the politicians want to make that happen as it will greatly effect their re-election plans. Nobody wants to be the bad guy. Plain and simple, there is no turning back. There is a very nice video on youtube that goes into great detail and pulls in all the small whisperings and tells it like it is, but it is over an hour long. but if you cant figure out how to answer your wife's question...."why cant they just print more money?" this guy will make it crystal clear for you. Here is the link.

http://www.youtube.com/watch?v=ruXEbe0nt9I

Proverbs 22:3 says it best.