On Thursday, Oct. 7, 2010, the dollar reached an all-time low, falling to its lowest value in 15 years.
This is more bad news for the Obama administration, which has yet to take any impactful measures to deal with the problem of unemployment, the housing crisis and the lack of credit around the nation. The decline of the dollar, which has been observed as a symbol of U.S. global economic hegemony for the best part of a century, may be irreversible.
Historically, when the value of the dollar decreased, so did the price of gold and oil. This is completely the opposite in today’s market. The decline of the dollar has coincided with increases in the price of gold ($1,355) and oil ($82). Spot gold prices continued their positive price action while the U.S. dollar exhibited vulnerability.
This may be a sign that a domino effect may follow. There may be an increase in other commodities as has been seen in the past, such as speculation that a weakening dollar will increase demand for U.S. crops, including wheat and corn. Or even worse, inflation since the Federal Reserve will most likely flood the market with more currency.
This may lead to an increase in the cost of living, which is already quite high, causing the oil producing countries of the world to raise their prices since the dollar would be worth less.
This may be why the central bank of Japan cut its key interest rate to virtually zero recently and is looking to set up a $60 billion fund to buy government bonds and other assets as it tries to inject life into its slumping economy. With the U.S. economy losing momentum, the Fed may launch another round of debt purchases soon, especially since Japan is buying more government debt, since a weaker dollar boosts the appeal of U.S. crops to overseas buyers and makes commodities more attractive as an alternative investment.
The economic situation in America is critical but politicians seem to just talk and point fingers. The question that remains is whether or not the U.S. has entered a debt spiral, and how much debt the nation will have after this crisis, since it is obvious no current policies are focused on creating a strong dollar. –torrance stephens, ph.d.
