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Barron's is Wrong Series Post 3: The latest news illustrates why the dollar has much further to fall

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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

7 Comments – Post Your Own

#1) On April 10, 2008 at 1:41 PM, abitare (58.10) wrote:

Did you call for Back up? The Doctor can help:

Ron Paul on $100 Oil and the Root Cause - NH Debate 1-5-2008

 

FYI - UDN - PowerShares DB US Dollar Index Bearish

 

 

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#2) On April 10, 2008 at 4:21 PM, TMFSarahGen (99.76) wrote:

hmm, I think the dollar has bottomed, at least temporarily.  There are some banks lowering rates.  The ECB held steady, but is expected to lower their rate by September.  Trichet just is scared to death of inflation.  There is no question about slowing in multiple European countries, but this is the challenge they see having them grouped together.  Certainly Sarkozy has been screaming for help for months (Sarkozy is the Prime Minister of France); and things don't look to pretty in Spain.   Just because Germany is doing well, doesn't mean the rest are.

Lucky for England they have a separate central bank.  And they lowered rates this morning.  BOE lowers rates.

Definitely interesting to watch, and impossible to call at this very second.  It'll all be clear in a few months.  Maybe you're right 

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#3) On April 10, 2008 at 4:22 PM, leohaas (35.73) wrote:

"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..."

Huh? Aren't you one of those people who is on record as considering to vote for "hundred-year-war-if-necessary" McSame?

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#4) On April 10, 2008 at 5:13 PM, TMFDeej (99.46) wrote:

Very good point, leohaas.  There's no doubt that my disgust with the war while at the same time considering the possability of casting my vote for the warmonger McCain is somewhat hypocritical.  I need to reiterate that my blog post was a discussion about which candidate would be best for the markets, not which one is a saint.  I prefer McCain's tax and foreign trade policies to Obama's, but obviously I prefer the latter's stance on the war.  The problem with McCain's stance on taxes is that even if he wanted to, I'm not sure that he will be able to get the necessary votes to extend the tax cuts that expire in 2010.  I'm definitely waffling on who to vote for.  I am undecided as of today.  I am basically disgusted with all of the candidates.  How can a huge country like ours come up with such a disagreeable list?  Yuck.

Deej

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#5) On April 10, 2008 at 6:55 PM, ATWDLimited (< 20) wrote:

Yup, the dollar is fundamentally weak, just as I illustrate in The “Official” Dollar Report. On another note, how is it that we got the worst front runners, MC Clown: the Warmonger, Obamination: Socialism in a new package and Hilbilly: need I say more.

Really, why are we failing for the same old war of socialism, this aint germany and it aint the 1930s. I wish all people who pay $5,000 or more in income taxes could vote reagrdles of age, cause that would include me.

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#6) On April 10, 2008 at 6:56 PM, ATWDLimited (< 20) wrote:

I meant war and socialism sorry.

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#7) On April 10, 2008 at 10:18 PM, dwot (97.03) wrote:

I always like to read the bears...

Frank Veneroso

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