The value of the dollar in comparison to other countries around the world is falling. Meanwhile, my net worth is increasing, so naturally I began thinking. Is it possible that although I’m earning income, saving, and investing, I’m not actually gaining ground from a global perspective? Furthermore, does a global perspective matter to me? I haven’t been outside the country in years.
From January 31, 2007 to January 31, 2008, my net worth increased from $75,121 to $125,770, an increase of of 67%. During that time, the dollar has decreased in value compared to other currencies and commodities. I ran some calculations.
I would have done better if I had been earning my salary in euros. With a strict currency conversion using rates from OANDA, my net worth was valued at EUR 57,964 at the beginning of the period and EUR 85,083 at the end. My former 67% increase in dollars translates to a less impressive 47%.
What about gold? I’ve heard people claim that the economy would be better if we never left the “gold standard.” I’m not quite sure it would make a difference. All value is arbitrary, whether it’s a metal or paper. Anyhow, converting my net worth in dollars to ounces of gold would result in a starting point of 114.61 ounces ending with 135.92 ounces. Thanks to the dollar’s decline and gold’s rise, my value in gold increased only 18% in the last year.
Does any of this matter? I don’t use either euros or gold for the exchange of goods and services. Yet, I still can’t overcome the feeling that I’m not getting ahead as much as the USD numbers claim.
Subscribe
I think the way most of us will experience the falling dollar trend is through the increase in costs for foreign-made goods. Which, these days, is just about everything we buy. Your money just won’t go as far as it used to – at least for a while.
The fall in the dollar doesn’t really matter in the way your are framing it.
What does matter is that the dollar is falling largely because we (the Treasury and the Fed) are running sizable ‘real’ inflation (not the phony CPI crap). This (like OneCheapTrick said) is making imports more expensive, which will pinch some people in the short term when gas and cheap Chinese goods at WalMart go up 50%.
On the plus side, it makes our exports more competitive which can boost domestic production and manufacturing. We will increasingly sell our expensive and complex GE locomotives, Boeing airplanes, and John Deere tractors overseas. A lower dollar also encourages foreign tourists to spend their money here and spurs foreign investment in US businesses.
In other words, it is a double edge sword which has both positive and negative impacts on our economy and on the average consumer. Long term I see it all working out just fine.
Hey Flexo,
As far as being on the gold standard, and it not mattering… one nice thing about being on the gold standard is that we wouldn’t be able to print money so easily. The printing of money (inflation) is a tax you just don’t see.
I wish the fed would’ve held their ground on rates and not created the housing bubble.
Currency movements are an unavoidable fact of life for investors (even if you don’t invest overseas). At times those movements will work in your favour and at times against (and the fall in the US$/HK$ has been a significant contributor to portfolio returns for me).
As has been mentioned above, only some of your expenses will be affected by currency depreciation. Others will not be affected, so a direct comparison of portfolio return to currency or commodity price changes is not a fully valid measure of performance. In fact it’s a bit like benchmarking a bond fund to the S&P500 index. You might have done better, but you are not comparing like for like.
Let’s not go back to the gold standard. It may stop governments printing money, but it would inflict massive damage on the economy in the process.
You have made a great point.
A fall in the currency of our earnings is painfull, and will be even more so, if we consume imported products, which will keep being more expensive.
Our generation may not have seen extreme cases of currency drops. In Ghana, Cedi 9,500 once bought a house. In 1999, about 15 years later, a bag of cement was more expensive than 9,500 Cedis.
Perhaps we can start expecting some corporate announcements from companies who earn in Dollars but borrowed in other appreciating currencies.
Kudos “Adfecto:” our consumer products costs may escalate, but remember: wealth is relative to purchasing power. So far wrt income, Americans still enjoy a high standard of living on the cheap. The great thing about residing here is how many high quality things we get to choose from: 2-3 cars per household, furnishings, television, computers, cosmetics, and discount air travel. Thanks to our healthy competition and well-tuned supply chain in Asia, Latin America and Europe, the dollar afford a relatively high standard of living and travel.
Prior to the dollar’s descent, I had been traveling to more than 30 developing and industrialized nations; two years ago we got an salary offer in London which would be slightly more than our American salary today. But the job required relocation where the cost of living cars, laptops and grocery items are somewhat more costly. Tax in many socialized nations is also higher for the average American wage. (Caveat: adequate health service and cell phone/wifi coverage is better elsewhere, but I guess it’s not a priority for me.)
If you can live ascetic and get the same US salary in Chinese RMB, by all means, snatch the offer and move to China! Because as long as you refrain from luxury imports such as cars and iPods and plane travel, you’ll accrue more money by spending only ~$1000 a month max. Sadly, most expats can only wish.
So… use your net worth to invest in appreciating markets, but spend here for everyday items, you get more value. Without foreign experience it’s hard to appreciate what a vibrant economy we offer given our lower taxes and how easy it is to train for jobs and regain employment. It’s easy to see devaluing of the dollar and feel blue. Actually, this will stimulate US exports and domestic travel.
I’ll start by saying that I’ve been thinking the same thing.
Then, if I may be so bold, I’ll share my speculation that we never really get ahead. This isn’t just a financial problem, but a mental and emotional one. For example, right now I’m in debt (mostly student loans). I want to get out of debt as soon as possible, which adds a certain amount of . . . not exactly stress, but one more thing to think about, manage, and plan for. Once I get out of debt, I’ll want to start increasing my net worth. But as I increase my net worth, will I still have to worry about whether or not I’m truly making progress?
I don’t think we should fail to bother with paying down debt or increasing personal net worth; I’m just concerned that the whole thing—the pursuit of happiness, if I may use that term—bears a suspicious resemblance to a hamster wheel.