| In his latest video, "Blue Magic," off the American | | | | Treasury securities (T-Bills, Notes & Bonds). The |
| Gangster album, rapper and businessman Jay-Z (No.8 | | | | U.S. government has trillions in debt but still has "good |
| on The Black Economy's Wealthiest Blacks List) is | | | | credit" with the rest of the world. But after |
| seen flashing a wad of cash. However, this time it's not | | | | accumulating over $9 trillion in treasury debt, many |
| the usual $100 Ben Franklins, but euros (the official | | | | foreign investors are starting to become suspect |
| currency of France, Germany, Italy, among others)? | | | | about the Federal Government's spending habits and |
| Many Jay-Z fans did not quite know what to make of | | | | have stated they plan not to purchase as many U.S. |
| this "money switch" and others simply did not notice | | | | dollars in the future. For example, China is the largest |
| him holding EUR500 notes in the video. Why would | | | | holder of foreign exchange reserves (a country's |
| Jay-Z prefer having euros over the U.S. dollar which | | | | assets like U.S. dollars and Treasuries) totaling over $1 |
| has been the world's most preferred currency for | | | | trillion of which about $750 billion is in U.S. Treasuries. |
| decades? Is Jay-Z predicting the American Economy | | | | Recently, China announced that they would "diversify" |
| is headed for hard times and the U.S. dollar will further | | | | their foreign exchange reserves because of the |
| decline in value? Or is hip-hop's ambassador just | | | | dollars declining value. If they started selling their U.S. |
| continuing to be a trend-setter and his usual financially | | | | dollars, other foreign investors out of fear would also |
| flamboyant self? | | | | start to sell and the dollar could potentially crash |
| Everything in this world has a price and although it may | | | | because no one would want to own it. The President |
| be hard to imagine, a country's money is no exception. | | | | of Iran, Mahmoud Ahmadinejad, and Hugo Chavez, |
| The price of one country's currency in relation to | | | | President of Venezuela, have stated that the U.S. |
| another country's is called its exchange rate. For | | | | dollar is "worthless" and have been trying to persuade |
| example, the current exchange rate for euros to U.S. | | | | OPEC (the crude oil cartel of countries) to not accept |
| dollars is EUR1 is worth $1.44. This rate is mainly | | | | dollars for oil anymore. |
| determined by supply (how much U.S. dollars are in | | | | So how does the falling value of the U.S. dollar directly |
| circulation) and demand (how much foreigners are | | | | affect you? If you plan on traveling to any of the |
| willing to trade their country's currency for U.S. dollars). | | | | thirteen countries in the Euro Zone (e.g. France, |
| The key players in the foreign exchange market are | | | | Germany, Italy) where euros are used, you will be |
| banks, governments, multi-national corporations and | | | | paying more for goods and services. For example, in |
| individual investors/speculators. Trading some $3 trillion | | | | Paris a Starbucks latte will cost you about 5 euros or |
| a day, foreign exchange is the largest financial market | | | | $7.20 ($1.44*5), whereas in the U.S. it would cost you |
| in the world. Although stock markets dominate news | | | | roughly $3.00. |
| headlines, the size of the global stock market is only | | | | Gas prices in America will also go up as the dollar |
| $51 trillion -- foreign exchange generates that amount in | | | | declines. Why? Because since crude oil (which makes |
| weeks. | | | | up 50% of the cost of gasoline) is priced in U.S. dollars, |
| One of the main factors that determines the value of | | | | those rich oil companies in Saudi Arabia and Dubai |
| a country's currency is the overall health of its | | | | want more dollars to make up for the lost value of the |
| economy. Although the American economy is | | | | dollars they receive from oil sales. Just imagine if you |
| experiencing billion dollar problems in the housing | | | | sold oil for $3000 a barrel and then used that $3000 to |
| market because of lost bets on sub-prime mortgages, | | | | take a yearly vacation to Paris. Well, let's say one year |
| it will not cause our $13 trillion dollar economy to fall off | | | | later you sold another barrel for $3000 and then found |
| into a recession -- which means an economy will not | | | | out that it's going to cost you $4500 for the same trip |
| create as many goods and services as it normally | | | | to Paris because the dollar lost its value against Paris' |
| produces. However, as long as people don't start losing | | | | euro. You too would probably start charging more for |
| their jobs then American consumer spending, which | | | | your oil to make up the difference for your vacation |
| accounts for about 65% of our economy, or roughly | | | | trip. |
| $8.5 trillion, will continue to keep the economy growing | | | | How can you make money off foreign exchange if |
| despite higher gas prices and increasing housing | | | | you live in America? You could come up with a |
| foreclosures. | | | | business that sells to the countries in the Euro Zone |
| Although our economy is fine overall, since 2001 the | | | | where euros are used and then price your goods or |
| U.S. dollar has still lost about 40% of its value versus | | | | services in euros and later convert them to U.S. dollars |
| the Euro and the Canadian Loonie and about 33% of | | | | at the current exchange rate. This means if I sold a |
| its value versus the UK Pound. The dollar is surprisingly | | | | pair of Nike Air Force One shoes to someone in |
| down 45% against the Albanian Lec. | | | | France on Ebay for EUR60, I could then trade those |
| So what is the reason for the U.S. dollar's steady | | | | euros for $86.35. Since euros are worth more than |
| decline in value over the past six years? One reason | | | | dollars it makes since to be paid in euros because you |
| is that interest rates in the U.S. in 2001 through 2004 | | | | can trade them and receive more dollars. You could |
| averaged about 2% or lower and banks paid lower | | | | also learn how to be an investor/trader in the foreign |
| interest on U.S. dollars. According to the Federal | | | | exchange market by doing your research and |
| Reserve, in 2003 an average certificate of deposit | | | | practicing first with virtual money on sites like until you |
| only paid 1.17% in interest. In response to those low | | | | feel you are good enough to try it with your own |
| interest rates, foreign investors decided against owning | | | | money. Err on the side of caution as you never know |
| American dollars and instead made money by trading | | | | when the currency exchange rate may shift for or |
| for other countries' currencies that paid more in | | | | against the currency you're trading. |
| interest. Another reason is the U.S. Government's | | | | Finally, Jay-Z holding that wad of euros was more than |
| continued budget deficit (or spending more money then | | | | likely his usual sarcastic way of saying since he owns |
| they receive from federal taxes). | | | | euros then he actually has even more money than the |
| How can the government do this? They simply | | | | rest of us only having U.S. dollars! |
| borrow money from Americans and the rest of the | | | | "ROC-A-Fella y'all!" |
| world by selling I.O.U's, or what's officially called | | | | Have a Safe & Prosperous New Year! |