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Dollar: Darkness of Devaluation

October 19, 2008

The dollar has become an international scapegoat fueled by international economic pressures and political expedience.

stagnant wealth

stagnant wealth

Oil prices are down and Americans are celebrating the decreasing attack on their wallet, or at least so they think. The average American citizens struggling with high prices of gas, food and capital goods with stagnant incomes look forward to lower prices. Unfortunately, lower prices are not usually good news in such a scenario.

For example, prices can decline because of less demand, forcing reduction of inventories and production cut backs, resulting in massive worker cuts. This vicious circle results in a downward pricing trend along with further job cuts. The massive corporate exportation of U.S. jobs has expanded the economic blight to emerging and other foreign economies beyond the immediate stress of the financial meltdown. This vicious circle of downward economic pressure applies beyond the confines of singular economies, working in a global sense as well. That is why you are seeing a global economic decline.

The credit market and global finance crisis, combined with stock market declines and plunging home values is alerting the world to deflationary pressures in a classical sense.

hyperinflation devaluation

hyperinflation devaluation

Generally, a steady process of inflation is not considered a devaluation, although if a currency has a high level of inflation, monetary value falls against foreign currencies and sometimes gold. In the case of the United States and the dollar, the deliberate printing of money and creation of monetary credit results in hyperinflation like the nation has been experiencing despite publicity by the Fed and the U.S. Government to the otherwise. On a singular level, this nation has covered a persistent budget deficit resulting in devaluation against other currencies. Because of the global status of the dollar, the United States has been the author of dollar destruction as well operating as a global monetary scapegoat for global central bankers and international banking authorities.

The U.S. central bank or Federal Reserve has pumped trillions of dollars into the global financial system to try to spur lending while supporting more spending and price stability. Some economists see this action as reducing the threat of deflation by encouraging still more hyperinflation. The bottom line is that economic authorities are hoping for a middle ground between hyperinflation and devalution, even though that middle ground is unlikely. They see this as a requirement for economic stability.

In the case of lower fuel costs, global recession has created deflationary pressures for most major monetary units, resulting in lower prices. The cycle tends to create a steady downward trend.

Then we have rockheads like Edward Lazear, chairman of the Council of Economic Advisors and top economic advisor for the Bush administration.  He recently stated that “it will take a few months for a significant impact from the Treasury’s $700 billion credit market rescue plan,” but that “the first signs of response are already apparent.” Response to what? The U.S. Government has not done anything yet but make a promise. Once again, the government can create a temporary confidence syndrome, without any real action of any kind.

You may well feel on top of the world because you are paying less than $3.00 a gallon for gasoline. Perhaps demand is weaker creating a temporary bonus. Most likely, monetary devaluation of other currencies against the dollar has resulted in lower prices and we can’t forget about the government ban on shorting commodity sales. In other words, most prime currencies are experiencing monetary devaluation and we are reaping the results. The credit for that goes to the global economic downturn. ~ E. Manning

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