Bob's Links and Rants

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Tuesday, December 07, 2004

Does this look good to you?

Dollar vs. Euro, one year chart:

Dollar vs. Euro, five year chart:

Theoretically, this is supposed to have some benefit to our economy, since a cheap dollar makes U.S. exports more competitive. But our major exports now are mostly raw materials and food: cotton, leather, soybeans, wheat. Our agriculture is heavily mechanized and employs very few people anymore, so this "benefit," if there is one, is showing up in the pockets of only a very few (generally, the same ones who got the most benefit from the tax cuts). For the rest of us, it just means that imports cost more right at the time when we are least able to afford them.

And, of course, the falling dollar is putting pressure on foreign dollar holders, especially Japanese and Chinese banks, to stop financing our deficit. When they do, the dollar will fall even faster, interest rates will shoot up, and 1980-style stagflation (or probably worse) will take hold.

My approach, which I can only hope is a good one, is to carefully spend the dollars I have soon in ways that will make lower-cost living more possible. Solar panels, insulation, maybe even minor modifications to my house so I can take on a boarder if necessary. If inflation takes hold, which will be the case when not just euros and yen but everything costs more dollars, having a wad of money in the credit union or under the mattress could be very risky. Better to become less money dependent, I think.