The dollar, like any resource, is subject to the same laws of supply and demand. The value of a dollar will rise and fall with regard to its supply versus its demand. In simplistic terms, if the total U.S. GDP is $10 trillion, then there better be 10 trillian dollar bills to back that up.

Of course the U.S. economy is an extremely complicated system with all sorts of positive and negative feedback mechanisms. I imagine the task of maintaining a stable dollar is a difficult one, especially with globalization of the economy which brings along other monetary systems like the Euro, Yen, etc, which investors may value higher than the dollar. In the end, what is any currency worth? How do you gauge it, especially the long-term value of investments tied to a specific currency. Should I place most of my assets in U.S. dollars or in Euros? Much of the value of any currency is the faith placed in the economic and political system of the issuer, i.e. is the government stable, is there rule of law and not whim, does the government purposefully de-value it’s currency by intentionally over-printing, etc. That being the case, it seems most investors prefer the U.S. dollar.

Judging by the immense credit card debt people are in and how many Americans live paycheck to paycheck (these are rules in North American life, not the exceptions), I have to wonder how many men understand money too.

Maybe they’re just afraid of you. Or something.

I was having a conversation with some associates at the retail store I am working at. They were musing at how an increase in minimum wage was going make everyone richer. Of course, not being soft headed, I understood otherwise and explained it to them.

I guess that maybe people understand, on a base level, that things are slowly getting worse, but they would rather try and be more positive about what is going on.

Or, then again, maybe some really are that clueless…

The following link is an article by Ben Stein in which he argues that real estate values do not outpace inflation in the long term, while stock prices do (historically, anyway). Aside: I really enjoyed the show Win Ben Stein’s Money when Jimmy Kimmel was the host.

http://finance.yahoo.com/expert/article/yourlife/21845

Mr. Zucker, I am not convinced that rents will rise more slowly than real estate prices over the long run. It is true that the underlying cost of the good – the apartment in this case – is relatively fixed: the landlord has a mortgage on the property, and this mortgage payment is probably a fixed monthly payment. So yes, there is no natural upward pressure on the cost of producing the good.

However, if rents were consistently to rise lower than housing prices over the long run, then at some point it would simply become a preferable choice to rent rather than own. As a deliberately simplistic example, assume the price of a house rises by 5% per year. The price of a rental rises by 2.5% per year. At the end of 10 years, the house’s price has gone up 62%, while the rental price has risen by 28%. There are other benefits of owning a home – having something that’s yours, the tax deduction of mortgage interest, etc. – but still, it is unlikely that a material difference between housing price increases and rental increases can exist in the long run. I’m willing to be proven wrong, and would be interested to see some data on it.

But I’m admittedly picking nits. The larger truth holds: increasing the money supply fools no one in the long run, though there are plenty of fools who think otherwise. And I can’t write about Bush’s drunken spending without having a meltdown, so I’ll just say that there is no fundamental difference between big government conservatives and big government liberals, other than the lip service that each pay to their base.

The rent price rise is less than the general price rise of real estate for a number of reasons. Rents are distorted downward by landlord investors expectation of profit from rising prices on their leveraged investment. Investors competing with each other for renters believe that they can afford to let rents rise slower than the general rise in real estate prices because they anticipate that the rising price of the property will be their main source of profit. Also, many investors bought several years ago and can afford lower rents to cover their smaller mortgages that financed the lower sales price from several years ago. This appears to work for everyone until investors and/or the Fed get nervous. When investors get nervous they stop bidding up prices.

When the Fed gets nervous it changes its policy of easy money and decides to increase interest rates to slow the rate of fiat money supply growth. The higher interest rates make the cost of financing speculative real estate higher and so investors can’t afford to continually bid up prices. Prices can drop leaving lots of people left standing in this financial game of musical chairs. This is now happening in many cities throughout the US. No one can confidently predict how big the drop in real estate prices here will be. The long recent price drop in Japan lasted 15 years and lowered prices in many areas by two thirds!

Other than that, I can’t imagine what it’s like for Westerners to live under a Marxist dictator in Zimbabwe. From what you say, it sounds like enough of a nightmare to live in South Africa. [Which is going that way.]

First is, “stable” in terms of what? The US government officially tracks inflation, but there is no concensus, and there can be no concensus, as to how “average price level” should be defined.

Second, there is the assumption that price stability is a valuable thing. I’m not so sure of that.

In any case, the idea that the US government does not take advantage of its currency monopoly by inflation is contradicted by most historical evidence. Rather, the value of the dollar in terms of most things has declined continually. There are well-known exception — computational power, for example. But even using the US government’s official CPI statistics (in which it has every incentive to understate inflation), the dollar is worth roughly a fifth of what it was in 1970. (See http://www.westegg.com/inflation/ )