Dollar declines:
Jim you have to admit that any decline in the US dollar is vigorously fought all around by almost all concerned. Only the US wishes a lower dollar inorder to have a chance at international competition re: manufacturing and the balance of trade problem. The US wants a lower dollar, but still maintain its status of "safe haven". That's the rub. Almost every other country, (most are exporting into the US) like the high dollar. Also, the US is unique in that reserves are denominated in US dollars/securities. These vested interests are inclined to support the status quo. For there to be any downward movement in the $US, a GREAT resistance must be overcome. The drop in the $US when compared to the EURO, more than 20% in the past year is therefore even more impressive, and should give cause to reflect on the reason for the weakness of the dollar.
Any other country's currency trades much more freely and is not constrained to the same extent at the $US. Almost everything worldwide is priced and referenced in terms of US dollars. As the dollar keeps dropping, world-wide recession continues. The irresistible antidote for the US is of course to keep on printing dollars, in an attempt to inflate their way out of debt, which simply re-inforces and continues this cycle downwards, and invites competitive international devaluation.
My main theme is that the whole world is dependent on a strong US dollar, and what we are witnessing is a momentous sea change. The dropping dollar has the greatest affect on the US citizens, who's standard of living must drop accordingly, as imported items from oil to manufactured goods will cost more. For people to expect oil to return to $15/bbl. in the future given the weak dollar is completely unrealistic. Same is true for gold.
And in the final analysis, increased prices will cause real inflation. Before that happens however, much pain will be absorbed by the populace as their standard of living is eroding. A hint of inflation to come, perhaps hyper-inflation, will be when unions begin to strike for large wage increases.
My hazy glimpse in the crystal ball.
Phil |
