Saturday, October 25, 2008

U.S. Greenback Reached A 2.5 Year High Yesterday

The U.S. dollar index (vs. major currencies) hit a 2.5-year high today, reaching the highest level since April 20, 2006 (see chart above).

Update: What's so great about a rising dollar?

1. Imports are cheaper. We buy almost $200 billion of goods from the rest of the world, but export only about $120 billion. Since our imports are greater than our exports, we have a net gain from a rising dollar.

2. A strong dollar makes gas and oil (which is priced in dollars) cheaper. As I have reported, consumers save $1.42 billion annually for every cent that gas prices fall. Consumers will save more than $200 billion over the next year from the recent fall in gas prices, and part of that price decline and consumer savings is from the stronger dollar.

3. The appreciation of the dollar suggests that inflationary pressures have eased for the U.S. economy.

11 Comments:

At 10/24/2008 4:21 PM, Anonymous Kit said...

Bubble!

 
At 10/24/2008 4:51 PM, Anonymous qt said...

Seems like only yesterday that we heard predictions that the U.S. greenback might lose its status as a preferred currency for foreign reserves.

Even good news these days seems to be cause for gloom.

 
At 10/24/2008 6:11 PM, Blogger SBVOR said...

Dr. Perry,

Off topic, but…

If anybody still doubts the oil/gasoline price spikes last summer were, by FAR, primarily a simple function of supply and demand, this updated post (a subset of this post) should clear that up.

Feel free to cite that post or adapt it as you see fit (or not).

SBVOR

 
At 10/24/2008 7:19 PM, Blogger bobble said...

sbvor, nice chart.

 
At 10/24/2008 8:15 PM, Blogger SBVOR said...

Bobble,

Thank you.

 
At 10/24/2008 10:18 PM, Anonymous Anonymous said...

The US dollar along with the Japanese Yen which is also surging even more so then the dollar were the carry trade currencies of choice in the stretch for yield by the hedge funds which are now blowing up. This is crashing markets around the world as these trades unwind likely due to team Paulson and Bernankie allowing Lehman bro to fail. One problem for the dollar going forward is with these contries all now on the ropes they don't have the money to by our debt let alone our exports.

 
At 10/25/2008 2:16 AM, Blogger bobble said...

This comment has been removed by the author.

 
At 10/25/2008 2:19 AM, Blogger bobble said...

Dr Perry, so we can all share your enthusiasm for the dollar, it would be informative if you would explain: 1) why the dollar is increasing in value and 2) why this is good for the u.s. economy

 
At 10/25/2008 9:25 AM, Anonymous Anonymous said...

The global lightblub came on that money and credit ain't the same thing.

 
At 10/25/2008 11:43 AM, Anonymous Anonymous said...

The economic times are fantastic spend, spend, spend !!!

 
At 10/26/2008 1:41 AM, Blogger OBloodyHell said...

> if you would explain: 1) why the dollar is increasing in value

Try this:

Hockey moms and capital markets

More extensively covered, but less obviously related:

P.J O'Rourke answered this in
Eat The Rich:
I had one fundamental question about economics: Why do some places prosper and thrive while others just suck? It's not a matter of brains...



Quick Summary, for both the article and the book:
The Rule of Law

.

 

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