Depreciation of US Dollars

The depreciation of currency is due to various economic factors and cant be manipulated by other foreign nations as claimed government of USA.

Since many years with the start of Bush era (2001) USA is running large trade deficits and the Iraq war was the main reason for large government expenses in US military leading to budget deficits and further trade deficits. Trade deficits because foreign countries (China & Japan etc) contributed to large inflows in USA in exchange of US treasuries.

The Debt to GDP ratio increased further since 2003 and was about 0.4 i.e about 40%. Obama government introduced mediclaim & mediaid bills in 2010 and it is predicted that this bill will have large contribution of government expenses and so will rise the government expenses and US dept is predicted at about 53 trillorn dollars in 2014 leading to large trade deficit and depreciation of US dollars.

 Predicted Debt to GDP ratio
2050 - 100% (the worst situation happened during World war II)
2070 - 200%

Rise in debt will cause large trade deficits and depreciaiton of US dollars. The question is how would other countries get affected with rise in trade deficits of USA, the answer is as simple as the next currency bubble is surrounding China.

China is buying Gold and hedgeing with deppreciation in US Dollars and so the price of gold will rise till then. But there is always a saturation point for rise in gold prices where other investors will sell Gold due to fall in supply. 

So never buy Gold after it crosses $1600 an ounce because it would be forced to fall from this level.

Kuldeep H. P

Making love for Economics & Financial Analysis

pitrodakuldeep@gmail.com