4 ms·

Can somebody ELI5 what is going on wrt the dollar? I vaguely remember reading a blurb the other day about how the dollar is getting stronger across the board bu

Can somebody ELI5 what is going on wrt the dollar? I vaguely remember reading a blurb the other day about how the dollar is getting stronger across the board but it didn’t get into why or what the possible consequences could be.

ewzimm 4y ago
The Federal Reserve sets interest rates for banks. To slow rising prices, they have been increasing interest rates, which makes people want to buy more bonds because they have better returns. As more money moves into U.S. dollar-based investments, the value of the dollar rises, and the investments based in other currencies that were sold to buy them decrease in value.
HappySweeney 4y ago
The best explanation I (an economics layman) have seen is the Dollar Milkshake Theory. https://www.youtube.com/watch?v=xxzy3sLs4Bs https://www.youtube.com/watch?v=xxzy3sLs4Bs
- kotlin2 4y ago
  That’s not really accurate. There only part that’s accurate is the US “sucking up all the dollars”, but it’s not due to a credit crisis. The U.S. is the most aggressive in terms of raising its baseline interest rate. The interest rate is higher in the US than anywhere else, relative to the safety of its government bonds. Therefore, people with money want dollars so they can buy treasuries and earn a higher yield.
- nikau 4y ago
  That's a pretty fucking good milkshake. I don't know if it's worth five dollars but it's pretty fucking good.
snake_plissken 4y ago
One thing that could cause issues is the rising cost of paying back Dollar denominated debts. Like if I was a Japanese company that issued bonds denominated in Dollars. I have to use Yen* to buy those Dollars to pay it back. Now it takes many more Yen to buy a Dollar so the cost of servicing the bond has risen even though the principal amount remains the same. * I just assume Yen is being used, it's not strictly required, you can use anything to acquire the Dollars, but the cost of acquiring them is rising.

ewzimm 4y ago

The Federal Reserve sets interest rates for banks. To slow rising prices, they have been increasing interest rates, which makes people want to buy more bonds because they have better returns. As more money moves into U.S. dollar-based investments, the value of the dollar rises, and the investments based in other currencies that were sold to buy them decrease in value.

HappySweeney 4y ago

The best explanation I (an economics layman) have seen is the Dollar Milkshake Theory. https://www.youtube.com/watch?v=xxzy3sLs4Bs https://www.youtube.com/watch?v=xxzy3sLs4Bs

kotlin2 4y ago
That’s not really accurate. There only part that’s accurate is the US “sucking up all the dollars”, but it’s not due to a credit crisis. The U.S. is the most aggressive in terms of raising its baseline interest rate. The interest rate is higher in the US than anywhere else, relative to the safety of its government bonds. Therefore, people with money want dollars so they can buy treasuries and earn a higher yield.
nikau 4y ago
That's a pretty fucking good milkshake. I don't know if it's worth five dollars but it's pretty fucking good.

snake_plissken 4y ago

One thing that could cause issues is the rising cost of paying back Dollar denominated debts. Like if I was a Japanese company that issued bonds denominated in Dollars. I have to use Yen* to buy those Dollars to pay it back. Now it takes many more Yen to buy a Dollar so the cost of servicing the bond has risen even though the principal amount remains the same. * I just assume Yen is being used, it's not strictly required, you can use anything to acquire the Dollars, but the cost of acquiring them is rising.