Friday, October 09, 2009

King Dollar is Not Well

There has been a lot of talk on the condition of the dollar. The dollar is declining in relative value to other stores of wealth. Gold is at record highs and Larry Kudlow notes with respect to gold S&P 500 has declined (S&P up 18% Gold up 21%).

Now, administrations often choose to pursue a strong dollar or a weak dollar policy. Weak dollar is good for exporters (US goods are more competitively priced) and strong dollars are good for those of us who consume foreign produced goods (spell it o-i-l). Within a given range we are looking at trading off one desirable end for another desirable end.

However, once the currency gets out of whack with others then bad things begin to happen. Last summer (summer of 2008) I paid close attention to the dollar as its state was frequently cited as one factor in the high price of gasoline. Yeah, at one time the US $ was on par or slighly weaker than the Canadian dollar (which in my previous trip north was trading at about 67 US cents to one Loonie). Then the full effects of the housing bubble burst took hold and the dollar strengthened up. Well since then we had an election , a new president, and a hard and determined push to greatly increase government spending. In addition, talk of replacing the dollar as the currency oil is traded in & are adding up to one thing people and nations are beginning to fear the serious devaluation of the dollar. To be sure, every time the dollar was low, OPEC always made noise about demanding something other than dollars but other nations are starting to join in this chorus.