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The Dollar, The Euro,
The Yen and The Roc?
by Jaime Arrington
Financially,
America is in a strange place right now. Though we are widely
considered the richest nation on earth, we are dancing on the edge
of recession. The “real-estate bubble” has finally burst, stock
values are falling and energy cost are skyrocketing. But, if you ask
Jim Cramer (host of CNBC’s “Mad Money“) the real red flag that our
nation is in for a recession presents itself in hip hop superstar
Jay-Z’s new video.
“Jay-Z is a smart guy” Cramer observes as he shows a clip from
Jay-Z’s “Blue Magic” on his hit financial program, “Mad Money.” Then
Cramer freeze frames the video on a clip of Jay-Z flipping through a
large stack of money. The bills in Jay’s hand are not US Dollars,
they are Euros.
 “There it
is clear as day!” Cramer exclaims. “Many intelligent, wealthy
Americans are converting their money into euros.” This, according to
Cramer, is because with all of the of the financial woes our country
is experiencing, the value of the US Dollar is falling rapidly.
It is an interesting observation, the US Dollar is seeing an
unfortunate decline. It may very well be that the spending habits of
a nation’s citizens are the litmus test for how far this will go.
The “sub-prime mortgage” fiasco has banks and mortgage companies
seeing unheard of losses. This unfortunate blow to our economy is
happening just as high energy cost are causing Americans to curb
spending habits. Spending less money on goods and services, of
course, further drains the economy.
The steady, troublesome decline of the value of the US Dollar has
now turned into what appears eerily like a nosedive. The dollar has
now lost about 46% of its value against this newly-created
Frankenstein of Old-World European currencies. It makes Americans
who travel nostalgic for the good old days of French francs and
German marks. The dollar’s decline means that all of us Americans
now have less purchasing power versus almost every other major
currency (particularly, the once-equal, European Euro). In a real
sense, we're just not as rich as we used to be.
But, the real issue present in losing this currency clash is more
covert. Jay-Z is not the only investor that is moving into foreign
markets. Around the world, there's growing nervousness about the
value of the dollar as a "reserve". What does that mean? Well, you
and I bank at the retail level, so to speak. When we have an extra
buck or two we march it into Citibank or some other bank to deposit
it. But, when a whole country has extra cash, it has a slightly
different choice to make. It can keep its extra cash in the form of
its own currency or …it can keep it in the form of somebody else's
currency.
Over the years, when a country (like, say, Saudi Arabia) made an
extra billion or so in oil money, it could convert that billion into
another currency and hold it in its central bank. Throughout the
last century, the decision Saudi Arabia and almost any other country
with extra dough made was simple -put that extra dough into good ol'
American greenbacks. But, those days are dying. As nervous heads
start to become nervous feet, central bankers have begun moving away
from US Dollars. That in and of itself may hammer the dollar's
value.
Stronger currencies, like the Euro, are looking more an more
appealing. It may just be a matter of time before Jay-Z can say he
has started another trend.
-Jaime Arrington
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