Barron's is Wrong Series Post 3: The latest news illustrates why the dollar has much further to fall
April 10, 2008
– Comments (7)
In my last post on why Barron's article stating that the prices of commodities like oil and grains are going to fall is wrong I focused on the increasing demand from emerging markets. Today I am going to look more closely at another reason why the we are still in the early stages of the commodities boom, the falling dollar. Most people who follow economics will agree that conventional wisdom states that large trade deficits, a high level of national debt, and low interest rates relative to other countries are all bad a currency. For evidence that the U.S. dollar is going to continue to fall, one has to look no further than today's headlines:
Large trade deficit: CHECK
Despite a weak dollar that is making the goods we produce in America cheaper to foreign countries, the U.S. trade deficit continues to widen. The Commerce Department this morning that the U.S. trade deficit increased by 5.7% in February to $62.3 billion. This is its highest level since November 2007. Trade deficit wider; jobless claims drop
Low interest rates compared to other countries: CHECK
While most experts expect the Federal Reserve to lower its target rate by 25 to 50 basis points this month, the European Central Bank continued its vigilant fight against inflation this morning by keeping its rates unchanged. ECB Keeps Rate at Six-Year High to Contain Inflation
A growing national debt: CHECK
While the United States' government continues to waste a mind boggling amount of money (not to mention thousands of U.S. citizens' lives) it a war that it should have never entered in the first place, it is now working on a plan to use our hard earned money to shower the very companies that created the housing bubble that popped and caused all of the problems that we are experiencing with money. The $25 billion in tax relief that the proposed bill would provide to home builders and banks is going to further add to the country's surging national debt. Housing bailout money mostly for businesses, not homeowners
The bottom line here is that the dollar's fall is not even close to being over. This drop will cause the prices of commodities that are priced in dollars, such as oil, natural gas, grains, etc... to continue to rise.
Deej
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