I have predicted for some time that the dollar would collapse against the euro, and that oil would climb to $100+ a barrel both before the end of this year. We seem to be on target with my predictions. My other prediction was (is) that when the dollar hits 1.50 to the euro (it reached 1.4832 in Asia in overnight trading), that it will become almost impossible to prevent oil producers (Venezuela and Iran have already spoken about doing it) from pricing their oil in euros. If OPEC (only the Saudis have so far seemed to prevent it) decided to price oil in euros, it will not price it in the dollar equivalent, it will probably be at par with euros, so that instead of 100 dollars a barrel it will be 100 euros a barrel (150 US dollars) instead. Even if the price is lower in euros, just the psychological effect of euro pricing, will cause the dollar to fall further, thus increasing the dollar price for oil for us here in the US. Such pricing of the fuel that our whole country needs to survive, will be the straw to break the camel's back (if you'll forgive the middle-eastern analogy!)
This administration, and also our Congress, it must be said, are responsible for this state of affairs; both the Republicans until recently, and now the Democrats, have allowed this to happen. The administration for entering into an absolutely disastrous war, which has not only drained out resources and treasury, but actually has been fought on borrowed money from China, and also alienated so many people and governments throughout the world that any goodwill we might have expected to shore up our currency as we might once have expected as the world's most powerful country and leading currency, has essentially evaporated. Congress is to blame because it has spent like a drunken sailor on shore leave with an unlimited credit card over the last 7 years, and the Democrats have done nothing to really stop it, even though they must know the damage that has been done to our country's coffers from the years of huge deficits under this Bush administration.
Add to this, the crazy situation we have had where the housing "madness" over the last few years, where property values were rising beyond sustainability, and loans were being made that could not be repaid if the rise ever stopped, which it inevitably did, of course, and during this period of "economic growth" fuelled by borrowing against the value of rising house prices, because despite increased productivity, true wage increases were not happening for the average person, except the already very rich and overpaid CEOs, and you had (and have) a recipe for economic disaster.
The prices of basic foodstuffs in the stores are rising almost every week, as fuel prices climb steeply and shipping costs escalate; the possibility is very real that we could go into one of the worst economic downturns in our history!
If the Fed lowers interest rates again (as it surely must, and will, to try and stave off a real downturn here) it will be the worst of all possible worlds. The lower interest rates will lower the value of the dollar further against the euro, especially since the Europeans have no need to lower their own interest rate, and when the dollar collapses even further, the inflation rate will explode as we rely so much on imports of everything from fuel to food, to clothing and computers and electronic goods. The result? Stagflation! (A stagnant economy, with inflation.)
Pity Fed Chaiman Ben Bernanke. He knows what's happening. He's printing money to try and stem the credit crunch brought on from the subprime mess, and at the same time he knows it's not working, and he knows that every cut in interest rates to try and shore up our shaky economy actually puts another nail in its coffin!
2008 isn't looking too good for this country. We really are on the brink of a possible melt-down like Argentina a few years ago.
America will survive, but it will be owned by the Europeans, the Chinese and the Indians (all of whom are buying companies here really cheap, and cheaper by the day), and for the next two years we all might well be on the rocks financially.
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