Hi BSGrinder.
While I agree that the US$ is on very precarious ground, I would not agree that "Any decline in the dollar means a corresponding gain in "stuff" priced in dollars" (though, a decline in the dollar "may" well result in a corresponding gain in the price of raw materials).
To my understanding, commodity prices rise because there is a relative excess of money/credit compared to a relative scarcity of commodities. There are two sides to this equation: (i) the availability of money/credit, and (ii) the demand for commodities. Furthermore, the demand for commodities is affected by (i) the relative scarcity of a commodity relative to the overall economy, and (ii) the health of industrial demand which influences the demand for underlying commodities.
If there is a decrease of available credit which results in a substantial negative impact on global liquidity conditions, you may well have a case where (i) the dollar declines modestly to significantly, (ii) US interest rates shoot much higher for a time, (iii) corresponding with a serious global aggregate demand shock, (iv) causing economic malaise and deflationary pressure in Asia, (v) causing commodity demand to ease considerably, thereby negatively affecting commodity prices. Furthermore, such an aggregate demand shock/global liquidity shock would also (vi) put further pressure on global corporate earnings, (vii) causing further cost cutting measures to reduce labor costs and therefore increased unemployment, thereby (viii) result in serious downward movement in global equity prices (whereby rising interest rates would already be doing damage to the bond markets).
Oh, and then there's the fact that derivatives, interest rate swaps, and the like have geared the whole financial market to unprecedented levels. :(
Anyway, I don't know whether such a scenario will unfold. But if such a scenario did unfold, I personally feel commodity prices could get hit pretty hard. But I could be wrong on this.
JM2C on the matter.
Glenn |
