Sunday’s News in Review

Every Sunday the New York Times has a small section where it lists five of the top news stories of the week.  This past week all five were on the fall of the dollar against other currencies.  I know that New York City is the financial hub of the known universe so that sort of story might play bigger there then in say, Omaha.  Except, here is the deal.  This lack of confidence in the dollar is the worlds way of saying that we don’t have confidence in the financial stability of the US.  Or to put it another way, we think you, as a society and a country, have been borrowing too much money and spending it foolishly on wars and mortgages for people who can’t pay it back.  Lenders are very big on getting the money they lend out back, then they are big on receiving interest on that money.

If they loose confidence in those 2 things then they adverse to lending you more money or as they say in the financial world, rolling over the loan.  They are also loose faith that the people who brought them the lending opportunity.   Think of it this way.  If your mother asked you to lend a large amount of money to your brother-in-law.  Say, he lost it all and did not have any way to pay it back to you.  If your mother asked you to lend money to anyone again, would you be nuts if you did?

Think of your mother as the US financial industry.  The financial industry, banks , credit card processors, brokers and such, accounts for 28% of all of the corporate profits in the US.  That’s up from like 5% in 1990.  If foreign investors loose faith in significant parts of our financial industry, the total profits of all companies in the US might take a big hit.  That is probably not good for the US economy.  So maybe all those stories on the weakness of the dollar should play in Omaha as well as in New York City.