WWEE Update and US Dollar Part 1

Last week's newsletter was on the Worldwide Wireless E-Commerce Explosion, WWEE, and that you need to participate in it. This week the Wall Street Journal had a short article that paints the picture for this country, USA. The title of the article was FCC Looks to Add to Airwaves for Wireless, perhaps you saw it. Below are some points from the article:

1) FCC looking for more ways to make more airwaves available for next-generation wireless networks, underscoring the expanding need sparked by the growing use of iPhones and similar devices.

2) Lack of airwaves available for so-called 4G networks “a looming crisis” that threaten American productivity.

3) Reallocate airwaves for wireless Internet services and speed up paperwork so new networks could be built faster.

4) FCC has approved a 3 fold increase in available spectrum in recent years but projections for data traffic show a 30 fold increase in demand, a 10 to 1 gap.

In this highly technological country we had a 30 fold increase in recent years. This means that Internet and E-Commerce is doubling each year and at a faster rate than the FCC is adding capacity. If you do the math and this doubles each year for the next 5 years, a 30 fold increases to a 960 fold increase, let's round to 1,000 fold increase. Wouldn't you call this an explosion?

A hot financial topic in the newspaper is the strength of the US Dollar. This newsletter will give an overview of the subject and the rest of the story will come next week. Newspapers are talking about how the US Dollar is falling and we want a strong US Dollar. Actually, it all depends on your perspective.

Another class of investment or trading is in currencies. Lots of people buy and sell a currency like the US Dollar, Euro, or Yen. Currency traders have a 24 hour a day, 5 days a week, job because currencies are traded around the globe on exchanges and an exchange is always open somewhere during the work week.

The best measure of the US Dollar strength is the US Dollar index that currently at about 77. This index is a composite index of all world currencies showing the relative value of the US Dollar. This year the US Dollar index has been as high as about 89 to the current low of about 77. To give a broader picture, during the last 10 years the US Dollar index has been as high as about 112 and as low as about 70. A lower number means a weaker US Dollar. It is important to state US Dollar because the term Dollar is also used by some other countries like Australia.

A widely published ratio is the US Dollar to the Euro which is currently about 1.47 US Dollar to 1 Euro or 0.68 Euro to the US Dollar. Earlier in the year the ratio was about 1.3 US Dollar to 1 Euro or 0.77 Euro to the US Dollar. Since the US Dollar has changed from about 0.77 Euro to 0.68 Euro it has weakened and why the newspaper prints about a weakening US Dollar.

Why does the US Dollar go up or down? The economic law of supply and demand rules supreme once again. As more US Dollars are printed relative to other currencies the over-supply lowers the value. When we have a US budget deficit we print money weakening the value. When we had a Federal budget surplus in the late Clinton Administration and the early Bush II administration the US Dollar index rose and was over 100. As we had a Federal budget deficit during the rest of this decade the US Dollar index declined and has been below 100. As our budget deficits grow and we print more money the value of the US Dollar is going to weaken regardless of what is printed in the newspaper.