Was wondering why RAM seemed to be more and more expensive. It was driving me nuts that 512 pc2700 sticks didn't seem to be any cheaper than they were nearly two years ago. Price gouging/fixing, factories destroyed by earthquakes -- must be some explanation right?
But then I compared using some foregn currencies, and it has gotten cheaper. Still not as much as you might expect, but pretty significantly. It's the dollar that has dropped, sliding 30% against the Euro since 2001.
MOST economists, and this newspaper, have been fretting about America's huge current-account deficit and predicting the dollar's sharp decline for years. The trouble with crying wolf too often is that people stop believing you. After slipping 14% in broad trade-weighted terms since 2002, the dollar had stabilised this year, even as the current-account deficit continued to grow. This has encouraged some economists to offer theories explaining why America's current-account deficit does not matter and why the dollar need not fall further. But the dollar has now started to slide again: this week it hit $1.28 against the euro, within a whisker of its all-time low of $1.29. Trust us, the wolf is real.
Gakk. When the Economist is predicting a dollar plunge, you know that things are getting weird again.
The big question is: is this another head-fake like the last time gold hits $430, or is this time for a major readjustment?
There are ways to preserve capital or even enhance it in such environments. If the dollar is devalued, any debt you have is likewise devalued. If your capital is not in the dollar, it will not be devalued. So given 100K in non-dollar assets and 100K in debt now, if the dollar falls 30% then the debt is 30% cheaper. You can now liquidate some of your assets and pay off all of the debt. Lots of people are making such bets by the time it gets to the Economist, often with derivatives to multiply the profit.
Of course, if we do have such a problem, you can bet that the Fed will be "shoveling money out of helicopters" as Ben Bernanke famously said. Then we get to find out whether inflation really takes off.
Yeah, the fall of the dollar vs. other major currencies is one of the great untold stories of this election. If the yearly deficits aren't brought under control soon, rich foreigners are going to wake up one of these days and stop buying our gov't bonds, and then we are HOSED.