A few weeks back I wrote an article about how the US economy is teetering precariously, on the brink of imminent collapse. That was written based on my realization that lots of hard goods manufacturers were doing everything they could, to move product, to keep from laying of employees, even if that meant putting off getting paid for the product until after it’s already depreciated away to nothing. I also pointed out that the subprime lending crisis was part and parcel with this, by trying to stimulate the housing market, to prevent recession, starting in 2000.
Just this morning, I ran across a chart that shows the underlying movement of the value of the dollar, compared to the rest of the economies of the world. The chart shows that the dollar is at an all time low, compared to 1973 dollar. In a future article, I’ll do some analysis on world events and how their effects are shown on the chart, but for now, we need to concentrate on the portion of the chart covering roughly 2000 through 2007, and as you can see, the value of the dollar built against our trading partners currencies, starting about the time that the decision was made to pump up the housing market (aka, the subprime mortgage scandal begins), but as you can see, that growth was short lived, and started falling away around the middle of 2002. The fall increased, and by 2005 we were solidly below not only the 1973 baseline, but even below 90% of that baseline. The fall slowed in 2006, but has come back full force, and is plummetting towards the 70% level.
Which brings us to the second side of this story. Gas prices are soaring, but that’s actually symptomatic of the fact that the dollar is falling. Locally I’ve watched gas prices at the pump rise from around $2.70, to today’s $3.09, which is a 13% change in price. If the plummeting dollar continues to fall, I predict that we could see pump prices nearing $4.00 per gallon by Christmas.
If this is hard to believe, it’s important to remember that the dollar is not a constant, it’s constantly in flux against other currencies, and looking at currency price ratios since January of this year, there’s a definite downward trend. In January, the US dollar was $1.19 Canadian, and as of today, that’s fallen to $0.93 Canadian. For the first time in years, the Canadian dollar is worth more than the US dollar. The same effect is seen against the Euro, and the British pound, indicating that this is a widespread issue.
Once again, this comes down to the fact that the global float is moving away from the dollar, and as more and more of the global float (the money that’s in constant motion, as a part of international trade) moves away from the dollar, the faster the dollar will plummet. This is the major damage caused by the global subprime mortgage crisis.
One of the interesting things that I saw in the news, was the brief auto worker’s strike, and the concessions that were agreed upon, which for the most part, transfered health care, and retirement costs from the automakers, to the unions. A few days after the strike was resolved, and the new contracts were issued, automakers have started laying off auto workers, because, now they have been able to shift some of those costs AWAY from the automaker’s bottom lines.
Expect to see the economy slow down even further, expect to start seeing layoffs, and higher prices across the board, and above all, I strongly recommend preparing for significant economic distress.
I’m the root @ All That’s Evil, but you can call me ‘Cookie’.