U.S. Dollar to Become the Next Yen?

By Monday, May 6, 2013

In its latest meeting minutes, the Federal Reserve said it will continue with quantitative easing, creating $85.0 billion in new money monthly, in order to bring economic growth to the U.S. economy. (Source: Federal Reserve, May 1, 2013.)

The Federal Reserve, once again, didn’t provide any clear indication as to when it will end the quantitative easing; rather, the central bank stated it will continue to do the same “until the outlook for the labor market has improved substantially in context of price stability.” (Source: Ibid.)

The Federal Reserve has already increased its balance sheet to over $3.0 trillion, and if it continues its quantitative easing at this pace, its balance sheet will balloon even more, possibly even reaching $4.0 trillion—or even $5.0 trillion—in a very short period of time.

This is troublesome news, dear reader. The more money created out of thin air via quantitative easing, the more the fundamentals of the reserve currency, the U.S. dollar, deteriorate.

As I have mentioned in these pages before, we only need to look at the Japanese economy to see quantitative easing is not a viable option for us.

The Japanese currency has plummeted since the Bank of Japan revved up its quantitative easing. Just look at the chart below of the Japanese yen compared to other major currencies in the global economy; it seems as if the currency has fallen off a cliff. If we keep up with all this money printing, the U.S. dollar may eventually look the same!

xjy-japanese-yen-philadelphia-index    Chart courtesy of www.StockCharts.com

A falling U.S. dollar will drag down the buying power of Americans even further, as they are already struggling to keep up with their expenses. What we could purchase for $1.00 in the year 2000 now costs us $1.35. (Source: Bureau of Labor Statistics, last accessed May 3, 2013.)

I have yet to see any real economic growth in the U.S. economy as it was promised when quantitative easing was first introduced after the financial crisis. Quantitative easing is working to make big bank balance sheets strong and to create inflation, but I don’t see any economic growth being created by it.

I am looking at the Japanese economy as the best example of a country failing with long-term quantitative easing and what might be next for the U.S. economy and the dollar due to all this newly created money.

What He Said:

“Partying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don’t know. Big (cap) stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one-hour waits… people are spending in America today at an unbelievable clip. 1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.” Michael Lombardi in Profit Confidential, February 7, 2007. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

About the Author, Browse Michael Lombardi's Articles

Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder and editor-in-chief of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful... Read Full Bio »

  • Confused

    Why is no one reading this? Can't believe I am the only one to leave a comment.

  • mehler

    Everyone wants to keep their head in the sand.

  • Cyber Revengeance

    a little devaluing will happen. but i am unable to understand the full implications of this devaluation.

  • Patrick Reilly

    If anyone had any sort of economic knowledge, they would understand that the correct answer to the question "Is currency devaluation bad?" is "It depends". Currency devaluation can help an economy immensely by promoting growth in the realm of exports, because if prices of US goods get cheaper, other countries will be more inclined to buy. this is obviously a scare article.

    1/10 for making me reply

  • Matthew

    I believe the main reason gold bullion prices skyrocketed in Japan was the devaluation of the yen. The Japanese currency has declined in value by 30%, compared to other major currencies, in a very short period of time. We have seen that gold bullion has been storage of value for thousands of years and sustained longer than any fiat currency. It acts as a hedge against inflation. At the end of the day, the U.S. dollar is a paper-based currency that's backed by nothing.