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Sunday, November 4, 2007

The Diving Dollar






First came 9/11, and America had to respond to that. What the world saw was a measured and calculated reply to the supporters and the perpetrators of the attack on New York and Washington, and no one was either surprised or even that outraged, including Al Queda’s sympathisers. The dollar took a hit, but didn’t lose too much ground.

But then came Iraq, and the controversy surrounding all that, and the dollar was hit hard. The hits just keep coming and the dollar just keeps on falling, like a prizefighter with no one’s ear to bite on, it’s down on one knee and it seemingly just can’t get up.

Certainly, the cost of running two wars is taking its toll. Meanwhile, the euro keeps getting stronger, perhaps not quite as much as seems, but with the dollar falling like a rock the euro now stands supreme. One positive thing out of all this is that we haven’t heard a thing from the United States about its deficit for some time. That’s because I suspect that there is no deficit. Really, there should be a surplus, or would be if so much was not being spent on the wars. Goodness knows what would happen to the dollar if the Unites States is drawn into an armed conflict with Iran.

There is also another force acting upon the dollar to drag it down, and that is the currency speculators. That lot have been dumping the dollar to hold euros, and every time the dollar falls another notch, they rejoice.

Clearly, the dollar is headed for the psychological conversion rate of 1.50, meaning it will cost one dollar and fifty cents to buy one euro. That is making life in Europe miserable on the one hand, and a delight on the other. At even the current rate, America is on sale. Tourism to America is up. American exports are up, but Europe can’t sell much outside the zone, so what’s an European to do?

My guess is that there is a devaluation coming of the euro, and a significant one at that. If you’re holding euros and enjoying the ride, my guess is that you will wake up on a Monday morning to find that the euro has been devalued by thirty or forty percent. So when to sell and take your profit?

Sometimes, Greed may actually be good. At other times, greed can make one choke.

Which will it be in your case, Mr. Speculator?

Copyright © 2007 Eugene carmichael