Bending the Third Rail
Because We Should, We Can, We Do
Tuesday, December 05, 2006
Dollarship Down
The dollar has been taking a nose-dive lately.

Why does that matter to you? Because when dollars, the world currency, goes down against other currencies international exporters have to raise their prices to get the same value. It also makes exports from the U.S. cheaper, which is a good thing. But since we import so many goods these days, prices will increase (that's called inflation) while the domestic economy is slowing (that's called stagflation).

One commodity in particular is likely to go up in price for the U.S. is oil. OPEC is not only feeling the pressure of excess inventory, but they are losing value in petro-dollars. Look to gasoline's increase since the election to continue.

In the meantime and despite Bernake's protestations otherwise, the bond market is betting that the economy is slowing more than expected and that interest rates will be going down soon.