Have you been watching the US$ the past few weeks? Wow. The issue as I see it and I may be wrong, I’m not a currency trader, is that at some point the rest of the world will may lose its confidence in the “full faith and credit of the United States government.” If that point is reached then we become like Iceland at best.
Riots in Iceland
So in the past 30 days one US$ went from being worth .78 Euros to .68 Euros. Hmmm, run some numbers in my head .10/.78 = 10%+. Think about that. The US$ now buys 10% less in Europe than it did just a week or two ago. Courtesy of http://www.x-rates.com/d/EUR/USD/graph30.html
And the US$ is also obviously losing ground to the Japanese Yen. In the past month the purchasing power of the US$ in Japan has also gone down by more than 10%. http://www.x-rates.com/d/JPY/USD/graph30.html
All are pretty precipitous drops. What this means now is that anything that we buy overseas just went up in price by 10%+. The good thing is that our exports became cheaper to the world markets.
This is the US$ index 90 day chart. The interesting thing here is the red line. The red line represents a 20 day moving average. Notice the movement downwards. http://quotes.ino.com/chart/?s=NYBOT_DX&v=d3&w=1&t=l&a=20
It’s currently at 78 or so. There seems to be support (magic hands) at around 70. If it drops below 70 for a week or two I’d get real concerned.
Still our whole economy is a confidence game. If the point comes that folks who purchase or hold US$ denominated assets lose confidence in the US government’s ability to back up the Trillions of US$’s being created by the outgoing Bush administration (not by PE Obama who hasn’t even been sworn in yet) then we are done. The US government won’t be able to sell debt to keep our ship of state afloat.
Look at the rate of the drop and consider whether the point of loss of confidence has happened or is approaching.
Think about it. Every $ created, and Trillions have been created by the current administration in the past three months, reduces the value of all $ already in existence. It’s dilution pure and simple.
How would you react if you had huge investments, maybe your life savings like a 401k, in the US$ and the US government kept diluting the value of what you held? Would you keep buying US$’s or would you be looking to cash out?
Our lenders are in a tough position though because if they dump too rapidly, others follow suit and it becomes a race to the bottom. The trick is how to divest cautiously so that it doesn’t force down the value of what they remain holding. Our lenders have a vested stake in propping up the US$.
As I wrote above though, expect everything that you buy that is imported to go up in price. It’s not a bad time to stock up on imported items that you like. Just about all of our clothing and footware are imported. I like olive oil and coffee. What do you like?
Still the critical issue is whether or not we reach a tipping point when the rest of the world loses confidence in the US$. If that point comes then the flow of goods (including oil) into the US comes to a grinding halt. We won’t be able to afford the fuel to run sorties over the 50 states.
Walkn about pics-
Please don’t be afraid of getting muddy. Dirt is one of the cleanest things I can think of.
It may be tough to see in this picture, but there are a bunch of boulders. They are glacial erratic. Glacial erratic are giant rocks left behind by the last ice age. About 10,000 years ago Glaciers creeped down from the Great White North into my neck of the woods. As the glaciers retreated or melted they left behind stones that were dragged far away from their origin.
This is sassafras in the winter (no leaves). Sassafras is easy to spot when it has its leaves because the leaves look like mittens or hands. The leaves got a thumb. In the winter it can be spotted because notice how the bark is kind of smooth with spots of green? Boiled sassafras roots make a great tea. Mmmm, iced sassafras tea. Just thinking of it reminds me of warm summer days. The dried leaves are crushed to thicken soups, and if you live in mosquito land, gumbo. I think down in swamp land they call the crushed leaves file’ powder as in gumbo file’. The twigs make tasty toothpicks too.