US Dollar Index

Many people ‘wow’ themselves with the price of oil, the Canadian exchange rate and the price of other ocmmodities like gas, wheat, soya, gold, etc.

For a long time, I’ve been saying that these changes have a lot less to do with economic miracles embedded within each of these commodities. Sure, there have been disturbances, but nothing on the scale that would support consistent increases in prices that we’ve seen over the course of the last 8 years.

So, to prove this point, I did a little digging related to the US dollar index. This is a basket of currencies weighted to reflect the ‘true value’ of the US dolar vis-a-vis a number of different currencies. The data for this little project is from the Federal Reserve Bank of Atlanta.

Here’s the chart from January 1995 to December 2007:

US Dollar Index, 1995-2007

It’s a pretty neat triangle, isn’t it?

I zoomed in from the beginning of the Bush Jr era to the present and I got the following:

US Dollar Index, 2001-2007

As you can see, the US dollar has been in a freefall since Joonior took office. There are a number of reasons for this:

  1. General global lack of confidence in unreliable economic theories
  2. Outrageous levels of overspending, particularly on defense
  3. The desire to have the rest of the world subsidize American consumption

Now, looking at a chart like this, you’ve got to think for yourself: “it has to rebound”.

If the Dems takeover, it might, mainly because they’ll have to reign in spending. The money institutions will start calling in their loans, taxes will have to rise, interest rates will increase, capital flows will stop and people will hate the Dems again, but for all the wrong reasons.

If the Republicans win (my bet is McCain), spending will continue to go through the roof and the US dollar will resemble a third-world currency in free fall, continuing the global subsidy to the American ‘standard of living’, assuming of course, that it’s individuals that benefit from falling prices (which they won’t) and not the MegaMarts that sell more crap to them (which they will).

In the coming weeks, I’ll try to put together some “quasi-indexes”, which will be comparisons of the US dollar index to various commodities. From there, I’ll attempt to get a sense of how much this dollar drop has cost the Canadian in terms of lost opportunity.

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