U.S. Inflation is Costing Online Entrepreneurs
I went to my bank today to deposit two Clickbank cheques and for the first time since I was a kid, the Canadian dollar was worth more than the US dollars that my cheques were issued in. Which meant that I had to pay a subsidy to be able to deposit them into my Canadian dollar account.
Same thing goes for my AdSense earnings, and every other source of funds in my online business; they all come from US dollar banks which I’m beginning to see is becoming a serious risk and expense in my business.
Check out the graph of the US dollar verses the Canadian dollar for the last 3 years that I have been earning money online.
US Dollars vs. Euros for the Last 2 Years
US Dollars vs. Canadian Dollars for the Last 2 Years
US Dollars vs. Australian Dollars for the Last 2 Years
Are you seeing the trend? How ugly is that!
This isn’t the blog to get into a detailed discussion of why this is happening but in a nutshell, US monetary policy ( I call it the “stick your head in the sand to ignore domestic financial reality and bomb a few other places as a distraction to keep CNN pre-occupied” approach) has created a massive problem which boils down to either keeping the economy afloat, or controlling inflation. In reality either approach leads to almost certain disaster in the long term so the real choice is to find the path where the disaster will be the least painful.
The path the US federal reserve has chosen is the lower interest rates in an effort to keep the US economy solvent and this is causing a balloon in inflation, which consequently is lowering the value of the US dollar.
This Costs a Lot if You’re a Web Worker Outside of the U.S.
What the chart above shows is that my $200 dollar Clickbank check from 2 years ago is only worth about $160 today. Essentially being paid in US dollars is becoming more and more costly for anyone outside the US.
Yeah! Serves You Right, All You Non-Americans
For any Yankees reading this, don’t think you aren’t being affected, it is actually worse for you. At least once I deposit your currency into my account the inflationary effect of the US dollar has stopped. However for US citizens, it continues on every day. As you government continues to pay debts by issuing more and more money (a fiat currency) the relative price of all goods and services in that economy goes up.
What Can you Do About it?
It’s clear from the chart (and the many many fundamental economic factors that are stacked up against the US dollar) that this is not a trend that looks like it is going to be reversing any time soon.
Therefore anyone who is earning money in US dollars, including US citizens would be wise to take one of two strategies:
- Start converting dollars into another currency. Gold, oil and other finite hard assets have traditionally done well as hedges against the US dollar.
- Look for alternative sources of income or payment.
How Are Big US Companies Affected?
I know that Google is the king of the jungle right now in contextual advertising, but it seems to me that they (and any other US online company) are vulnerable to competition on this front. If someone was to be able to pay me, and the thousands of other non-American partners, in anything other than US dollars, whether it was an affiliate company or contextual advertiser, it would be a pretty large incentive to try them out.
Maybe Google will begin to open divisions in other countries such as Canada and have clients pay them in Canadian dollars and then make payments to Google AdSense publishers in Canadian dollars. Same goes for Euros. I think this would be a really wise move for Google an other large global companies. It would also be a slap in the face for the US government, which could probably use a wake up call.
Conclusions
Really I have woven two related topic together here. On the high level there is the rapid increase in the US money supply which is fueling inflation and inflicting both short and long term pain on to US and non US citizens.
And as it specifically relates to those of us living outside of the US it is about the loss in income as the US dollar continues to decline. Surprisingly I have seen very little discussion of the trend, even given that quite a large number of the famous and big time online publishers are located outside of the United States.
Are you affected by the decline in the US dollar, and what are you doing about it? What if it takes a dramatic nose-dive?
Browse Timeline
Comments ( 17 )
Burton added these pithy words on Sep 21 07 at 8:47 amIn March of this year, I put almost all of my retirement funds into Canadian resource stocks. I haven’t checked lately, but I’ve made over 12% on just currency gains alone.
It was confusing at first, because I didn’t understand why my brokerage statement showed I was making so much money in USD, when all of my stocks except one were Canadian.
It’s just going to get worse (or better, depending on your perspective), since Canada’s economy is based largely on natural resources. This will naturally cause an increase in valuation as the boom in resources (mining, oil, etc.) happens.
B
Jared added these pithy words on Sep 22 07 at 11:16 amThe reason the dollar is failing is because there is nothing behind it except government fiat and promises to pay back loans with future, worthless dollars. The only thing that can conceivably keep the dollar valuable is faith that it is valuable; with banks making very, very stupid decisions, this faith is eroding. With an eroding valuation of the dollar comes increasing prices because people no longer demand the dollar on the previous level. On the other hand, if banks sufficiently inject liquidity into the market, the faith in the dollar may be restored, but so much money is created that demand for goods measured in dollars will rise to the point where prices increase. The dilemma of stopping inflation or stopping the economy float is pointless because on the one hand demand for the dollar and therefore its value falls or supply of the dollar rises and therefore its value falls. Other currencies aren’t quite as affected by the unsustainable system because of fewer stupid decisions and smaller consequences for stupid decisions, although the 1990’s crisis in Asia provides some evidence that the problem is systemic and not American. The only decent solution is to back up money with something of value other than fiat and promises; the simplest value would be (and this is very cliche) gold, although labor exchange, oil, and other metals are conceivable.
Lawrence Perry added these pithy words on Sep 24 07 at 3:52 amThe reason that the dollar has fallen in value, is because Bush has allowed it, and it is one of the most sensible decisions that he has made.
In short it allows American companies to be cheaper than companies overseas, and allows them to sell their products more effectively.
There is nothing wrong with the American economy.
I am writing from London, UK.
Jon added these pithy words on Sep 24 07 at 7:33 amI agree Lawrence. Nothing wrong with the US economy, as long as you look completely at the surface through rose-colored glasses. I don’t know how you are in your life but if my debt was massive and increasing by a greater rate every day, I know there is eventually going to be a problem. In the US every man, woman and child is currently over 500k in debt as a share of the national debt. My guess is, someday that is going to have to get paid back…I know that if they owed any portion of it to me, I may want it at some point.
Jared added these pithy words on Sep 24 07 at 9:11 amUhh Lawrence, the United States is the consumer of last resort, and has become more so during Bush’s presidency. A dollar worth less hurts the US economy because it takes more dollars for us to buy the imports that we buy, that Bush has done nothing to discourage us from buying, and which we wouldn’t be buying in such quantity if it weren’t for the mammoth taxes on American business and subsidization of other economies.
KNau added these pithy words on Sep 24 07 at 9:42 amLawrence might not be able to reply. Being in the UK he may be stuck in line trying to get at his savings before the bank crashes
Northern Rock is a good example of how the situation itself is probably survivable (the US economy recovered from the savings and loan collapse of the 80s just fine) but it’s people panicking in response that causes problems. The bank itself isn’t going anywhere but when everyone lines up to get at their money at once, it makes the situation look so much worse.
I’m figuring on a Democrat win in ‘08 which means by ‘09 the economy should be improving. I’m splitting my income between a Canadian account to spend and US account to save. I figure when the dollar goes back to normal I could be looking at an easy 20% growth or more on my savings. NO?
Lawrence Perry added these pithy words on Sep 24 07 at 10:22 amGentlemen,
The information was given to me by a currency dealer on Financial Futures, who considers the US$ to be strong currency, and their trade balance not to be too bad.
Incidentally I don’t rock!
Yet I can save you both an enormous amount of money, as I am backing the four hour week http://www.catchfriday.com
Charles Heflin added these pithy words on Sep 26 07 at 1:01 amThe US dollar is actually worth $.04 USD according to US senator Ron Paul (he’s got my vote).
The Federal Reserve (which is a privately owned bank BTW) has successfully taken us off the gold standard so they can print “monopoly money” in whatever quantity they desire.
The US government borrows money from the Federal Reserve Bank (AKA… the Fed) at no interest.
The IRS is the Feds collection agency. Each time the government borrows money from the Fed the actual value of our dollar drops even further.
If you live in the US then you need to wake up our founding fathers are rolling over in their graves right now.
Oh … did you know that there is no law stating that we have to file and pay federal income taxes?
Ask your local IRS agent to give you a copy of the LAW requiring you to do this… I did.
To make a long story short the agent ended up quitting because she could find no law and none of her superiors could find it either.
If we get rid of the IRS then the Fed’s control of our economy and government will end.
Sorry… got slightly off topic but this touched my funny bone.
- Charles
Jon added these pithy words on Sep 26 07 at 7:13 amHey Charles, I know that the tax law (or lack of it) you mention is true. Even though I’m a Canuck,I have a friend that is a US Citizen who successfully opted out of paying taxes in the US. It was a pretty long and delicate process, but he was successful. He now has special papers that he gives to employers and they no longer collect any taxes from him, nor does he pay them at year end.
blogstheme.com added these pithy words on Sep 30 07 at 1:20 amI’m from EU, and I get paid in dollars, and with the dollar going down, I’ve been losing around 20% of my profits, in the last 2 years… But hey.. C’est la vie..
JohnN added these pithy words on Oct 01 07 at 10:17 amThis is pretty bad for European internet entreprenuers. Now all that adsense money is worth far far less.
Charles Heflin added these pithy words on Oct 02 07 at 1:49 amHey Jon,
I would be interested in talking to your friend because I am in the process of doing the same. The FED is ruining the US economy and as a true patriot I am fighting back.
Email me…
Thanks,
Charles
Burton added these pithy words on Oct 02 07 at 11:12 amI’m surprised no one mentioned how the dollar is being purposely devalued. Sure the US has a huge debt, but the way out of it is to devalue the dollar so that the debt is smaller in real terms.
Happened in Brazil, in Argentina, and now here.
Lawrence Perry added these pithy words on Oct 02 07 at 12:47 pmActually Burton I did say that Bush has allowed it, but i don’t think it has anything to do with the debt.
The US problem with the mortgages is internal, and the only reason for it that they gave credit without the proper checks.
The US economy is strong, and unemployment is low in comparison to the UK.
Jared added these pithy words on Oct 02 07 at 2:24 pmBy no means is the US problem with mortgages internal. Why did the central banks of Australia, Japan, and Europe inject billions of dollars worth of money into their banking systems at that perfect time if the mortgage problems were internal to the US?
It doesn’t matter how strong the economy is when measured in dollars if those dollars are worthless, and it doesn’t matter how many people have jobs if they’re not making enough worthless dollars to pay rising costs.
Lawrence Perry added these pithy words on Oct 02 07 at 10:10 pmYou are suggesting that the US has a problem financially and I’m suggesting it doesn’t.
I don’t live in the America do you?
Tom added these pithy words on Oct 18 07 at 2:53 amHi! I live in Finland, which is a part of the Euro area €.All my checks are in US dollars and the current exchange rate is totally crap.What should I do? Wait until the dollar gets closer to the euro which can take several years, or earn more money