The New York Times reports that the European Central Bank raised its equivalent of the Fed Funds rate to 4.25%. Meanwhile, Bernanke's economic wrecking crew has kept the U.S. rate at 2%. Investors will sell dollars and buy Euros. That will cause the dollar to lose even more of the 72% it's lost since January 2001. But none of this is really happening because AFP reports that President George Bush has declared that "we're strong dollar people."
The key to U.S. policy is repeated denials of the obvious -- which is that U.S. policy is consistently intended to weaken the dollar. The reason is that a weak dollar makes the goods of big U.S. corporate exporters relatively cheap when they sell overseas. And of course, since oil is traded in dollars, a weak one causes the price of oil to spike. It now resides at a comfortable $146 a barrel, up 508% since January 2001.
But Reuters reports that Treasury Secretary Hank Paulson -- who last year brought us "subprime is contained" -- now says that the weak dollar is not to blame for high oil prices. With apologies to the old E.F. Hutton advertisements -- which said "When E.F. Hutton talks, people listen" -- when Hank Paulson talks, people snicker.
Why does Europe see things differently than the U.S.? The answer is complex. But one thing seems clear. The Fed keeps talking about how core inflation -- excluding gasoline and food prices -- is contained. Europe seems to care more about rising prices that people actually pay. Saying "we're strong dollar people" and repeating that "core inflation is contained" don't really make these statements true.With gasoline prices at a record high and the number of 4th of July drivers down, these statements could lead voters to ask themselves whether it's time for a change.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter










Reader Comments (Page 1 of 1)
7-03-2008 @ 11:09AM
speculator said...
I think the article is wrong. Markets don't go straight down. I think the dollar is ready for a 6 month bounce. But things are bad for the US. Some stocks are down 70% in the last year.
www.theinvestingspeculator.com
7-03-2008 @ 1:22PM
Karl said...
These boys have been doing this baloney for a long time-the "Robber Barrons, Bank Of England, Rothchilds, and their lackeys like the Bush's Walkers and Harrimans etc. Wars, depressions, booms and busts and they play both sides and all sides as long as they make a buck. Heck Prescott made 100% of his money off Adolf Hitler and the CIA was basically invested by Dulles to get their money back "clean" and start the BS all over again. When John D. Rockefeller and friends siezed 95% of the oil business way back when they took control.(he also took control of the iron ore in Minnesota too along with everything else he could) That big money never went away and it still rules and they mean to keep it that way. Sometimes it's war, sometimes a crash, and the dollar is screwed!(just like the USA) We are bankrupt but hey, as long as people will accept that paper? We owe over 85 trillion buckeroos!(debt and fiscal obligations) and you just try asking your graft sucking oil backed Congressman where we are going to find that kind of dough. Yeah, it'll be a cold day in_________when he gets back on that one. When the USA is totally destroyed economically and the army is broken they will buy what's left of the good stuff for nothing and profit on the upswing. Played the Russians, the Germans, the US, Iran, Vietnam, Israel, and everyone else. Capitalism gone wild!
Ok, back to the game, Beer, T&A, a few laughs, and maybe the machines when AI becomes "aware" will say heck, these things are dangerous! Poof! All species end, it's just a matter of when.
7-03-2008 @ 7:10PM
Chris said...
We need to raise rates now to battle inflation.
7-03-2008 @ 7:24PM
t walter said...
Historically, local factories produced goods for the local market, especially those goods which were cumbersome or perishable. Since the advent of the container ship and trains carrying semitrailers, all using cheap fuel, the world became the local market. Well folks, the world has changed. Now those Chinese products just got much more expensive to sell in a Wal Mart and the result may well be a resurgence in US factories. Watch commercial construction involving factories which produce consumer expendable goods. Beer, soap powder, meat etc... may once again be produced much closer to home. That folks means US jobs. And, I say good for us.
7-03-2008 @ 9:30PM
nickerson said...
We need to get rid of all these hedge fund guys. They are taking this country down the road to a third world country. It was sick to see how much money these guys are ripping off the poor slobs putting money in the market.
7-04-2008 @ 3:04AM
JT said...
Weak Dollar, and High Gas, or a Strong Dollar and our Jobs flying overseas. I'd sooner have to sacrifice a little to have the jobs here, than have the jobs vanish.
People need to stop complaining. It's either a weak dollar and being able to compete with China and India (and stomp on the EuroZone) or a strong dollar and eventually facing the same situation with out any kind of manufacturing capacity.
We could only be a net importer for so long before the dollar fell anyway. Better this quick kind of painful transition than a lightning fast transition caused by something like the US defaulting on its debts.
7-04-2008 @ 9:39AM
mangolf said...
Food and fuel are driving inflation. I sell plumbing supplies and everyday there are huge price increases.
7-04-2008 @ 2:25PM
william lindblad said...
The position of the dollar vs euro is the main issue at hand as this is where the most economic damage will result. This is really a very complex situation that hinges on the price of oil. Lots of culprits. The dollar/euro disparity probably represents around .40 of pump price, with speculation adding another 20-40. There is NO oil shortage. There is however, a shortage of refining facilities which we can blame directly on the oil companies for not staying with demand and letting existing ones fall into disrepair.
Banking greed and sub prime is at the bottom of the pot and this is where all ills originate. It was the catalyst to the present regressive economic state. Our economy was world dominate, consumer driven and fed by the greediest of corporate America. We are getting back to the time of the "Robber Barons" when 90% of the country's wealth is held by 10% of the people.
7-04-2008 @ 2:30PM
willy said...
I've watched oil drive everything else higher and higher. Many prices haven't increased yet due to lag time but they are coming. Inflation will blow up suddenly as everyone races to match their competitors. Consumers will continue to shy away from buying unless wages go up. That's what occured in the Carter economy. The cure for Carter was Reagan. What do we have to look forward to in this election? A progressive and a moderate liberal. Both will run up taxes and both will increase spending using borrowed Chinese money. What a mess. Thanks Bush, you really set it up for the socialists to back end us all. So, which socialist do you want this time, the radical or the traditional?
7-04-2008 @ 10:51PM
jerry mcdonald said...
isn't it amazing how you never see any of these people in public without armed security! I wonder why?
7-06-2008 @ 8:21PM
Ray said...
The Hell with the world economy. We were once the world's industrialization's nation. We manufactured everything in this country. We don't need the world. The world needs us. That's the attitude we need to concentrate on, again. Why should we care about Russia or China. They're not our friends. The only reason there is this global economy is because the US rich have figured out a way so that more money stays in their pockets instead of the workers. That's why they outsourced all industry. No factories, mills or plants producing, means no work force en force to unionize and demand proper wages according to the cost of living at any current time. Even the smaller companies roll people over so that they can't get any seniority. Therefore becoming a force to be reckon with. We, the working force need to become a solidarity and unionize across the USA. Make Congress have term limits. Take their ability to give themselves a pay raise. We will vote for their pay raise based on their merit. Force the conglomerates to bring back all outsourced jobs that left for cheap labor. We need to quit being so complacent. We need to move on this, now. Before it's too late. If all workers were unionize across the USA there would not be any fuel problem. The cost of gasoline would not be where it is. The rich are the reason the fuel is so high. But if we were unionized, the rich wouldn't want to raise the fuel cost because they would have to also raise our cost of living increase bonuses. Let's move, now, people. These two choices for President aren't going to do anything for the poor or middle-class. We have to do it ourselves, unionize in a major across the country solidarity like no one has ever seen in the history of this country. It's either that or stay under the thumb of the rich forever.