A reader asked a great question. “Why is the dollar so low” He said people are blaming it on the war in Iraq. He knows that isn’t the truth but was curious what is. I was going to type out an answer but I found someone else that stated it as well as I could
Analysts point to three main factors weighing on the U.S. currency. One is low interest rates. Ben Bernanke, a member of the committee that sets policy for the U.S. central bank, the Federal Reserve, said last week that “the Fed” will likely keep interest rates low for some time. That makes U.S. assets less attractive to investors, so there’s less demand for dollars.
And then there’s the large U.S. trade and budget deficits. Robin Bew is chief economist at the Economist Intelligence Unit. He said: “The U.S. consumes more than it makes domestically, so it has to import a lot of goods and so it has to borrow money overseas. People are [also] becoming increasingly worried about the amount of debt that companies and the personal sector are building up in America and they’re now becoming increasingly worried about the amount of borrowing the government is doing too, so everyone in America is becoming very highly indebted. That has implications for perhaps how fast America could grow in the longer term, so foreigners are becoming more and more reluctant to put money in America. So there’s less demand for dollars globally and the exchange rate starts to fall.”
Until those fundamental economic conditions change — or U.S. authorities signal their concern about the dollar — analysts say the currency is likely to fall even further.
A case could be made using the argument that if the government (Bush) used the money going to the war to invest in the economy then things would be better. That would be true if the government really would have moved the funds. Although many programs have been cut they are not cut because of the war but because Republicans always cut programs. The answer is simple. Foreigners don’t want to invest in the United States because the return is poor, not because they don’t like us. They are borrowing money from the U.S. at cheap interest rates and buying the Euro.