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But it’s not the blemishes that have caused my bill’s value to decline. Since 2001, the U.S. dollar has decreased in value vis-à-vis many foreign currencies, and rising inflation has caused the dollar to be worth less at home. I sat down with Agapitos Papagapitos, chair of the University of St. Thomas economics department, to find out why my dollar does not buy as much as it did seven years ago.

Currently, there are two major concerns with the U.S. economy: short-term issues, such as the subprime mortgage crisis and the housing bubble, and issues that are “fundamentally structural to the economy,” Papagapitos said. These structural issues include “persisting budget deficits, the fact that Americans don’t save, and the fact that there is a big group of people who are retiring soon – the baby boomers.”

The recession that followed Sept. 11, 2001, he said, discouraged foreign investors from holding dollars as a reserve currency, as did the U.S. invasion of Iraq in 2003. And the possibility of a recession in the months ahead is causing foreigners to be reluctant to participate in the U.S. economy.

“If I don’t like what’s going on in the U.S., the first thing I do is drop their currency,” he said, explaining how a foreign investor might think. “You don’t want to have anything to do with the U.S. So what’s the easiest thing to not have anything to do with the U.S.? You don’t hold their currency.”

If many people unload their dollars, the value of the currency falls.

When my dollar bill was printed, it could buy a slightly more than one euro. As of midnight, February 7, 2008, my dollar can only buy 0.68 euros, according to XE.com, a currency and foreign exchange Web site.

But the dollar’s declining value is not only the consequence of its perceived weaknesses, but also the perceived strength of foreign currencies, such as the euro. When the euro was new – as an accounting currency in 1999 and a common currency in 2002 – investors were unsure if the European Central Bank would be reliable or credible, Papagapitos said.

“But then as time went by,” he said, “people started thinking, ‘Well, this euro thing is working. It hasn’t imploded. This central bank of Europe is not looking like a bunch of amateurs because they look like they know what they’re doing.’ ”

As a result, euros became more in demand.

“If you’re going to hold more euros, you have to give something else up,” he said. “And they started giving up dollars.”

The decline of the dollar’s value vis-à-vis the euro, which Papagapitos described as gradual, could have been more drastic if it weren’t for countries like China purchasing many dollars.

Unfortunately, for those who are eager to travel in Europe or buy European goods, the United States might not rush to reverse the dollar’s slide. A weaker dollar allows the United States to export products more cheaply than many of its competitors.

“When you have other sectors of the economy, such as housing, suffering, it would be nice to have another sector booming to offset the other one,” Papagapitos said.

As economists discuss the possibility of a recession, inflation, especially in the energy and food sectors, also has affected how much consumers can buy in the United States. Inflation is uncommon during a recession, but changing demographics and the use of farmland for ethanol production has raised the cost of food, and the price of more traditional fuels continues to rise.

“What does this mean for the average person?” Papagapitos said. “It means that during a slowdown wages are not rising as fast. But, at the same time, prices are rising faster than you would think. You put the two together it’s obvious to see what happens to a paycheck’s purchasing power.”

The Federal Reserve lowered the federal funds interest rate last month to 3.25 percent from 4.25 percent and to 3 percent one week later to increase liquidity in hopes that banks will issue more loans, he said, leading to increased economic activity, and Congress passed an economic stimulus package, but neither addresses inflationary forces because of the “push and pull between inflation and economic activity.”

At a time when people might want to get loans to offset their weakened purchasing power, such loans are harder to get. A number of bad loans have caused banks to change their lending standards.

“Now banks are thinking, ‘I do have cash. But I have to be very careful who I make a loan to because it’s not good for me to make a loan, and try to earn interest and fees, if that loan is not going to be paid back,’ ” Papagapitos said.