The housing market remains in the dumper. U.S. stocks – despite a rally – are still 22% below their record highs of two years ago. And the "official" unemployment rate remains at a heart-stopping 9.6%.
With their knees almost ready to buckle under such burdens already, how will American consumers respond when clothes, computer accessories or other key consumer staples at their neighborhood Wal-Mart Stores Inc. (NYSE: WMT) undergoes an overnight price hike of 30% to 60%?
As the United States aims to increase exports by debasing the dollar, a global currency war is underway that could swallow consumers and investors if they don't prepare for the likelihood of a weaker dollar.
The United States, China, Switzerland, Brazil, South Korea, Australia, Japan have all entered the war, trying to bring down their currencies to boost exports and fuel growth. Countries are vying to win the "race to the bottom," as it's been called by Money Morning Contributing Writer Peter Schiff. And in the end the United States could lose out by winning.
"Given the U.S. dollar's status as the world's reserve currency, America's oversized status as the world's biggest consumer, and the influence of overseas export-oriented businesses on their home governments, the falling dollar is a difficult issue for many countries to ignore," said Schiff. "And with the imminent arrival of a second round of 'quantitative easing' from the Fed, the big guns of dollar destruction are being locked and loaded. The move looks poised to set off a frantic race to the bottom among global currencies, which will have important ramifications for every investor. Unfortunately, this is one race the United States is poised to win."
The dollar on Tuesday sank to its lowest level since January when measured against other major currencies.
The falling dollar means, exports will rise, increasing productivity, and proponents of a weaker greenback argue that the change could spur job growth. But if the dollar continues to lose purchasing power, foreign imports will cost more, and the deals on beloved U.S. discount stores' shelves will disappear – hurting U.S. consumers who are still regaining post-recession footing.
A steep climb on the price tags of usual "low-priced goods" slow the U.S. economic recovery and investors will may find portfolio gains eradicated if they haven't prepared for a weaker dollar.
"Against this backdrop, one of the smartest things for investors to do is buy those things that not only appreciate amidst failing fundamentals, but which preserve their wealth at the same time – case in point gold and other precious metals," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Commodities may drop in the short term, but any such moves will likely be reviewed in history's rearview mirrors as buying opportunities, for at least the next ten years."
Money Morning Contributing Editor Jack Barnes outlined this week seven ways to profit from the global currency war, noting a situation like this creates opportunities investors don't always get to explore.
"The era of 'friendly globalism' is over," said Barnes. "It's been exposed for what it always really has been – a series of negotiations. Now, however, the niceties and decorum that were always displayed to the outside world are gone, having been replaced by hard-ball/take-no-prisoners economic tactics. In that kind of an environment, however, some very interesting profit opportunities can crop up."
This brings us to next week's Money Morning "Question of the Week": Are you ready for a global currency war that could drop the U.S. dollar to new lows? How have you prepared for currency changes that could affect your investments as well as your consumer habits? Do you fear the outcome of the "race to the bottom," or welcome a weaker currency that could boost U.S. exports and strengthen economic recovery?
Send your thoughts, questions and concerns to firstname.lastname@example.org.
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News and Related Story Links:
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You Heard It Here First: A Global Currency War is Being Fought – And There Will Be No Victors
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Seven Ways to Profit From the Worldwide Currency War
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Question of the Week Feature