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Sunday, October 19, 2008

Falling currencies

Inflation is one aspect of the Economy that is always a concern. In the beginning stages of our latest recission inflation became our saving grace. As the value of the dollar (relative to other currencies) fell, U.S goods and other goods priced in U.S Dollars became cheaper to those using different currencies. As the dollar fell, U.S exports did increase by a a couple percentage points. Now the dollar is gaining ground while the Euro is falling. This means that U.S goods are becoming more expensive while goods priced in Euro's are becoming cheaper.
As U.S goods become more expensive exports are going to fall while exports increase for the countires using the Euro.
The mystery that is left to be seen is how much the falling euro will increase exports. At the time of the Dollar's decline, the rest of the world's economy had not yet gone into recession and people were more willing to buy. Now that the U.S recession has spread to the rest of the world, economic activity everywhere as slowed which will make the European countreis econoic recovery a much slower process then if the U.S were not in a recession.
One last implication of the Dollars value lies in gas prices. Oil is priced in U.S Dolalrs world wide and when the value of the Dollar increases so does the relative price of oil to users of other countries. In europe specifically, the decline in the euro vs. the dollar will result in higher gas prices. Higher prices translate into less demand. However, as demand drops, the price can be expected to fall. I noticed recently that gas prices in Colorado Springs have begun to fall well below the 3 dollar mark.

Comments:
I was just wondering- I heard that oil prices are falling because investors are leaving commodities like oil and gold and finding other investments. Do you think the value of the dollar is a direct or indirect relation to this.
 
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