A Decline in the Purchasing Power - Essay Example

?Dollar Decline INTRODUCTION A decline especially in the purchasing power of a dollar mainly occurs due to the rise of certain economic problems thatinclude weak recovery process and increasing public debt among others. This worldwide concern may adversely affect the economic performance of the United States of America (US) at large. The effects can appear in the form of increased level of export activities, minimizing purchasing power of the individuals on an international basis, rising commodity prices and upward trend of interest rates. The declining value of dollar is likely to unfavorably affect the purchasing power of the US citizens due to increased price of commodities (Feldstien, “The Declining Dollar”; Hammer, “7 Economic Consequences of a Dollar Collapse”). THESIS STATEMENT The essay intends to describe the impact, which is imposed by decline in the purchasing power of a dollar over the individuals and their respective families. Additionally, it provides the measures that can be adopted in order to combat the declining purchasing power. Moreover, the essay would also reveal the steps that are adopted by the national leaders such as the politicians to mitigate the problem of declined purchasing power of a dollar. HOW IS THIS DECLINE IN THE PURCHASING POWER OF A DOLLAR IMPACT YOU AND OR YOUR FAMILY? With respect to the decline in the value of dollar, the citizens of the US will be facing adequate challenges in relation to their purchasing power as the prices of commodities will increase due to rise in the rate of imported commodities. Specially mentioning, the unemployment rate will also augment due to increased rate of import price for industrial sector, which will unfavorably affect the life of people by a certain degree. It may further lead to scarcity in food products. In this regard, it can be comprehended that a decline in the value of dollar will lead to price inflation and the purchasing power of the people will decrease. Moreover, devaluation of dollar is likely to unfavorably affect the standard of living of the people. The living standard along with the purchasing power of the people will decrease as the price of the commodities will rise, making the income level stables. Contextually, the people will not be able to purchase their required commodities. Thus, decline in the value of dollar will imbalance the economy in relation to trading activities and investments among others. In this regard, a decline in the value of dollar will adversely affect people and their family with increased commodity price and deprived living standards (Feldstien,” The Declining Dollar”; Hammer, “7 Economic Consequences of a Dollar Collapse”). WHAT CAN YOU DO, FROM A PRACTICAL DAY TO DAY STANDPOINT, TO COMBAT THIS DECLINE IN PURCHASING POWER? The decline in the value of dollar will led to inflation and eventually would decrease the purchasing power of the people. In this regard, the people in order to address or to combat such declining purchasing power are required to devise certain appropriate strategies along with plans. In this situation, people having investments in the stock markets should reinvest and convert those in valuable assets that include gold and silver among others in order to preserve their wealth. Additionally, the people can also seek towards converting dollar in certain other currency. In this regard, people are required to plan their income in accordance with their respective budgets in order to maintain a minimum living standard under such inflationary conditions. Moreover, monetary credit operations ought to be minimized in order to maintain financial stability. Respectively, people with adequate savings and stabilized financial conditions will be facilitated with the opportunity of maintaining their living standards and most vitally combating decline in purchasing power (Mehalko, “Protecting Purchasing Power in Inflationary and Deflationary Environments”). In order to combat against the decline in purchasing power, people can invest more in real along with tangible assets that include equipments, commodities, precious metals and other properties. On the other hand, people should divest their investments from financial assets comprising equities along with long-term bonds. Respectively, people will be facilitated with the opportunity of having better liquidity options in such inflationary conditions and might combat against the decline in purchasing power. Specially mentioning, apart from the aforesaid approaches, people can also purchase more long duration bonds including corporate bonds and treasury bonds that may not become much effective in short run during such adverse conditions. While in the long run, the aforementioned bonds might become much effective in providing better returns (Mehalko, “Protecting Purchasing Power in Inflationary and Deflationary Environments”). WHAT CAN OUR NATIONAL LEADERS: POLITICIANS, FEDERAL RESERVE AND "REALLY SMART" PEOPLE IN CHARGE OF THIS STUFF, DO TO REVERSE THIS DECLINE? The decline in the value of dollar has been the major concern for the politicians, Federal Reserve and the US policy makers who are associated with the development of the economy. The decline has severely affected the purchasing power of the citizens affecting their living standards as well. Moreover, the decline affected the trade and business operations conducted in the nation at large. In this regard, the politicians of the US have blamed the ruling party for remaining modest during such adverse situation. Consequently, the politicians has urged for reelection, so that measures can be taken to revive from the crisis condition i.e. decline in the value of dollar (Bergsten, “The Dollar and the Deficits: How Washington can prevent the Next Crisis”). The Federal Reserve (Fed) is required to develop certain policies on the basis of which the decline in the value of dollar can be minimized. It should limit the printing of money in order to minimize money supply in the economy. In this manner, the Fed is likely to stabilize the value of money in the economy and also in international basis. Moreover, the Fed, in order to minimize the credit along with money supply in the US economy is required to raise the interest rates. In this context, the increased interest rates will ascertain that the borrowing and lending operations are decreased by a certain degree. Additionally, the Fed will provide government bonds in the market segments at an economical or discount rate with the intention of attracting investors. Subsequently, the Fed will be able to stable the US economy through raising the level of money supply, which might help in combating against the decline in the value of a dollar and the purchasing power of the people (Taillard 113-115). Furthermore, the US policy makers or the “really smart” people are also required to devise appropriate policies and plans on the basis of which the declining position in the value of dollar can be restored. Dollar decline in the US economy can be apparently observed owing to the reason of deficiency in formulating effective fiscal policies, which is applied to maintain a steady value of currency in international context. In this regard, the US policy makers determined that to restore foreign deficient along with debts, the government budget should be balanced. Moreover, stable economic along with monetary policies are required to be formulated as well as implemented with the aim of promoting more savings for the government. In this context, the government with the implementation of the aforementioned policies will be facilitated with the opportunity of generating more revenues. Respectively, the government will be able to meet the financial deficits in the field of public debts and other foreign deficits (Bergsten, “The Dollar and the Deficits: How Washington can prevent the Next Crisis”). CONCLUSION From the above analysis, it can be comprehended that decline in the value of dollar will adversely affect the economic stability of the US. Moreover, it will also adversely affect the purchasing power and the living standards of the people. Contextually, the people are required to devise ways of saving and maintain the monetary liquidity position appropriately with the aim of retaining their present and future purchasing power in the context of declining value of a dollar. In this context, the politicians, Fed and other officials should develop effective policies in order to revive the value of dollar and accordingly will be able to restore a stable economic condition in the US. Works Cited Bergsten, C. Fred. The Dollar and the Deficits: How Washington can prevent the Next Crisis. 2009. Web. 22 Nov. 2013. Feldstien, Martin. The Declining Dollar. 2008. Web. 22 Nov. 2013. Hammer, Eric. 7 Economic Consequences of a Dollar Collapse. 2011. Web. 22 Nov. 2013. Mehalko, Andrew. Protecting Purchasing Power in Inflationary and Deflationary Environments. 2009. Web. 22 Nov. 2013. Michael Taillard. 101 Things Everyone Needs to Know about the Global Economy: The Guide to Understanding International Finance, World Markets, and How They Can Affect Your Financial Future. United States of America: Adams Media, 2013. Print. Read More