In this article we examine the most important causative factors which have contributed to the fall in value of the US currency. What our research has found is that while there are variable opinions as to why we have seen massive devaluation of the US currency, at the end of the day, all indications are that it really is a simple supply and demand issue, which comes from the conceptual understanding of supply side economics.

But what has caused such a large supply and a weakened demand for the US currency, resulting in devaluation. First we will look at the demand side and later will examine the supply side. Lets examine these issues.

There are three basic forms of demand that can exist for the US currency. The first is the US economy itself. To what degree are consumers spending and borrowing money. What we currently see, given the poor US economy, is very little spending on the consumer side. Mortgages and various consumer loans are down. The Federal Reserve (Fed) has tried to stimulate consumer borrowing by lowering the interest rate, which is a classic method by the Fed. But this seems to not have worked very well, and consumer as well as business borrowing of money remains low.

In a robust economy, where consumer spending is up, and people are getting loans to buy homes, there is what can be called an internal demand for the US currency. Also, in a robust economy, business expansion through the borrowing of money takes place. Currently, consumer and business borrowing is down, which is what you would expect in a bad economy. The net result is less internal demand on the US currency.

The second form of demand comes from outside the US. That is foreign investment. While any investor wants to buy when the price is low, whether it is stocks in a company, or in this case, US currency, currently foreign investors believe that the US currency is not worth the risk. Commodities such as gold currently appear more attractive to the investor. This results in a decrease in demand for the US currency.

The third form of demand comes from massive oil transactions, using US currency, by countries around the world. The currency normally used in these transactions has been the US currency. But now there is talk about the possibility of some other form of currency to be used by OPEC ( Organization of Petroleum-Exporting Countries). The discussion itself by OPEC members, about not using US dollars for oil transactions, is enough to weaken the demand on the US dollar. Time will tell as to whether fruition of this change over to a different form of currency will take place by OPEC. In any case, current talks about a possible change of currency is enough to decrease the demand on the US dollar. If this actually happens, demand on the US currency will be even less.

Let’s now examine the supply side for the US dollar. This really comes down to the degree to which the Federal Reserve prints more money. Actually, the US Treasury, more specifically, the