Currency crisis

People challenge my assertions that a weak currency is ultimately bad for a country. They will argue that an artificially cheapened dollar stimulates exports and dampens imports, as exporters become more competitive in the global marketplace. This is true in the short-term, as exports are cheaper relative to exports from other countries. This leads to economic and job growth.

However, longer-term ramifications are insidious: currency debasement, inflation (diminished consumer purchasing power), asset bubbles, and higher interest rates down the road. If monetary easing is too exorbitant, it could give way to hyperinflation and ultimately, a currency crisis.

A currency collapse has eventually occurred to every paper currency known to mankind. It recently happened in Iceland and Argentina--twice. Many other countries are on the brink. The US is at risk over the next several years, due to rampant increases in the money supply.

Depicted is the aftermath of such a currency crisis, during Iceland's economic implosion last year:

The decline of the krona, which has lost half of its value since the start of 2008, has resulted in rampant inflation, which is now over 20 percent. Many people are seeing costs skyrocket, particularly on imported goods. Due to the high interest rates in Iceland, many people took out loans in foreign currencies where interest was lower. For them, costs have doubled

The economy is set to suffer a severe contraction in the coming year. Lars Christensen, an economist from Dansk bank commented, "Given the base now, GDP will then fall at least 10 percent, or even 15 to 20 percent."

Ironically, this information came from the World Socialist Website (see the whole article on Iceland):

http://www.wsws.org/articles/2008/dec2008/icel-d20.shtml

These are the unintended consequences of excessive government spending and public debt.