Dollar declines to new low
The dollar declined to a nine year low on
Thursday, mirrored by a sixteen year high for the price of gold. I have already
warned that the economic powers at the Fed, at the U.S. Treasury and in Wall
Street would do everything in their power to keep the economy going through the
election.
But now that the election is over and the right
candidate (from Wall Street's vantage point) has won, we already begin to see
signs that a serious economic decline could be imminent. As the dollar falls and
gold rises, this places stress on an already fragile economic system. If foreign
investors should pull out of the U.S bond and stock market, it could trigger a
collapse in U.S. asset markets. If the collapse is serious enough, it could
bring about the deflation which worried the Fed so much a couple of years
ago.
Curiously, part of the current
dollars fall can be traced to the Middle East, where investors, including
central banks, are pulling out of the dollar as part of a planned
diversification of their assets. China also appears to be pulling out of the
dollar, despite their huge export market to the U.S. A weakened dollar will of
course lead to higher gas prices for American consumers, putting yet another
strain on an economy that is quickly nearing the breaking point. It may,
however, help the current account deficit.
Posted: Thu - November 4, 2004 at 11:47 PM