inflation/devaluation redux

[ritaxis]

Idiotic straight extrapolation -- If CZK300,000 went from $12,000 to $16,359 in five months, in a year it would go to $22,461, which is a rate of increase for CZK/decrease for dollar of 87%. I think.

But the Canandian dollar has only gone to $1.10, which is what? I forget how much the Canadian dollar was earlier this year. But not more than a third less than it is now, surely?

Maybe what we ought to do next year is go ahead and borrow the full amount of his expected expenses for the rest of the time, turn them into CZK, and have him pay us with his loans -- to pay off our loans, which won't wait until he is finished -- while paying his fees from his stored CZK. Which he'll have to turn into Euros at some point. Next year?

Does anybody think the dollar will rally especially in the next six years?

Does anybody know anything about money?

Comments

[cpxbrex.livejournal.com]

One of the things about oil people never talk about is that it doesn't have to run out to run out. All that happens is demand has to exceed production. Say in the instance of two and a half billion people wanting to live like Europeans or Americans. And, of course, in the end, the oil will run out. Whether in 2010 or 2050, there's only so much of it and the earth isn't even making any more! (Since that time period, there's been a lot of evolution in single celled organisms - they are much more efficient at breaking down organic matter. The earth is making far smaller amounts of coal and oil as it did tens and hundreds of millions of years ago.)

So, the price increases in oil are as much about greater demand as political instability in the Middle East. Where does oil fit in? Well, right now, all oil, everywhere in the world, is traded in dollars. So, as the dollar weakens the price of oil goes up for us here in America. In the past two years, a barrel of oil cost $30 bucks and now it costs somewhere over $90, except for, say, Germans who buy oil in euros. That same barrel of oil is costing them somewhere in the $60 a barrel range, really. Yeah, it's more expensive, but not as crushingly expensive as here in America. Oil barons are watching. What they're thinking, right now, is, "Because we're not selling oil in euros, we're missing out on thirty dollars a barrel when we sell to Europeans, who account for 15% of our total sales. We're missing making a huge fortune because we don't sell in euros."

What does all of this mean? It means that the dollar will recover. The US still has tremendous economic and political power, unless one of several things happen. We enter a depression. What will be worse than the US entering a depression is that the rest of the world might not oblige, which would mean a serious reordering of finance around the world which would change, in the long term, the relation of US economic strength to the rest of the world. The US might enter a depression. What would bring this about, and these are just a few of the reasons, is 1. the collapse of the auto industry, which could happen; the whole mess of it tetters on the brink, 2. continued financial breakdowns; the credit problems in the housing market could pretty easily spread to other credit markets as people are crushed under credit card debt as that continues to build, 3. global oil markets start to trade oil in dollars and euros.

Of the three, the last is the worst scenario and it's inevitable. The US has been able to write blank checks for a while not because every government on earth needs to have a big wad of dollars to buy oil. If oil begins to be bought in other currencies, those dollars will start to flow backwards into America, causing a currency crisis that makes this look insignificant.

It is my personal feeling that this will be held off for a while. Currently, the US possesses unique military power. We are still a very culturally important place. And we do have a huge and powerful economy, even if it is troubled. The Powers That Be want the US to recover, at least for the time being, so it probably will. The fall of the US from the preeminent industrial position is something that will cause some real problems, and the more intelligent financial minds of the world want to shepherd this along with as little pain as possible. Who wants a US that turns into an economic disaster area? We've got nuclear weapons! No one wants a destablized America. So, in the middle term, yeah, the dollar will recover.