What international transaction perhaps best symbolizes the U.S. dollar's rough year of 2007? Giddy British tourists with more money to spend in New York than, seemingly, Donald Trump?
How about an international attraction that won't take dollars? In November 2007, India's Taj Mahal, one of the seven wonders of the ancient world and India's most popular shrine, announced it would no longer accept the dollar, citing the greenback's weak currency status, and accept only rupees, Bloomberg News reported Thursday.
Since January 2001 or during the past six years the dollar has fallen about 55% against the euro, 35% against the British pound, and about 10% against the Japan's yen. On Thursday the dollar was mixed against the world's major currencies. The dollar gained 0.62 cents to $1.4320 against the euro and 1.50 cents to $1.9831 against the British pound, but fell 0.25 yen against Japan's yen.
When a currency, such as the dollar, declines versus another currency, that means the purchasing power of those holding the dollar declines - - a sort of 'non-legislative' tax increase. It goes without saying that most citizens, and institutions, don't like to hold currencies that decline in purchasing power.
Dollar's rough year
Independent currency trader Andrew Resnick told Bloggingstocks Thursday said the Taj Mahal's decision was symbolic of the rough year for the dollar.
"Obviously, from a technical trading standpoint the decision by the administrators of the Taj Mahal probably won't move the markets much, but it sort of sums up the year for the dollar, as well as the dollar's low value," Resnick said.
Economists say the dollar's decline has been caused by several sub-par/poor U.S. economic fundamentals: the U.S. trade deficit, federal budget deficit, low U.S. savings rate, and low economic growth. Moreover, reversing the dollar's downward trend lower won't be easy, Resnick said.
No easy solutions
"The dollar has rallied some recently, but to see a trend reversal, major economic and fiscal changes have to occur, and none are easy. U.S. consumers have to save more and buy fewer foreign goods. Congress and the President have to cut the [federal budget] deficit and get close to a balanced budget," Resnick said. "Those are not easy changes. Then the U.S. economy has to growth faster, and right now, it looks like slower growth is ahead in 2008."
Resnick added that the U.S. Federal Reserve's efforts to help stimulate the U.S. economy - - lower interest rates - - will hurt the dollar short-term, but long-term "it will help, if the economy starts to go grow faster, assuming all of the other problems are addressed."
Resnick added that he thought the federal budget deficit would be the toughest hurdle because it involves sacrifices on either end - - a tax increase or spending cuts - - and because of divided government, with the Republican Party controlling the White House and the Democratic Party controlling the U.S. Congress.
"There are some signs that U.S. citizens are starting to save more, and exports are up, so the trade deficit is starting to improve. If the nation can cut the budget deficit, the dollar's value will begin to rise, assuming the U.S. economy is still growing," Resnick said.
Until then, investors - - and now even some international attractions - - will continue to favor stronger currencies, such as the euro, the pound and the Swiss franc, he said.
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