September 15, 2008

International Price Hikes Coming?

By admin

In the past, I’ve tried to assess the impact that the declining US dollar has on international commodity prices.  Link 1Link 2Link 3 .

At the core, I believe that we (as global citizens) are making a mistake by tying our commodity prices and products to the US dollar.  To quote the old adage "you don’t put all of your eggs in one basket".

As the US dollar depreciates, which is inevitable given the level of debt that the government has issued in order to finance wars across the globe, commodity prices rise because there is a basic and simple inverse relationship.  As the dollar drops further compared to more stable currencies like the Euro, the increase in prices actually becomes exponential.

In recent months, price increases have also been tied to speculation and manipulation, something that should be investigated a little further given the calamity that has resulted from these actions.

Now, over the last few days, the Chinese government has declared that they may start to cut their US dollar holdings.  Full story here .  China currently holds nearly $2 trillion in US currency and this, according to many of their advisors, is just a little too much.  No kidding.

Once a sell-off starts, we should expect the dollar to start to plummet again, resulting in a sharp increase in commodity prices (again).  The recent drops in oil and other commodities should be appreciated while they last.

Of course, I’m going to tie this all back to the Canadian election:  what are we doing to protect us from these gyrations, none of which we can control?  Do we price oil in Canadian dollars or even Euros, like other resource-rich countries have?  What do you think?