For now other major currencies are moving along the Euro, but if some of them stop moving that way we are in trouble (the sterling is unfortunately doing that).

I did a quick look some currency charts, the Euro has been gaining vs. most of the Asian currencies, particularly the Yen.

And so we leave the Age of Cheap Oil and move into the future with Stagflation.

With no cheap energy source to bail us out.

Any predictions on when we will pass through 70? 60? The runaway subprime train has only struck with the first car so far; the rest of the train continues to bear down in slow motion...

Everybody seems to be attracted like moths to a candle by the two doomer keyposts today. While I don't mind some of that, its both improbable and unremittingly gloomy. IMHO, association witk survivalist sorts is why peakists get labeled a cult. Way too many doomers/survivalists are in fact dangerous psychopaths-the latest was the man in Las Vegas who taped himself having sex with a three year old, but it goes back in US history as long as I am aware. They go from the apocalypse sorts like Warren Jeffs and Jim Jones of the Peoples Temple, to the Unibomber squirrel and Timothy McVeigh. I don't know if this type of philosophy attracts them, or that if a certain type of paranoid is attracted to visions of the world on fire. The Iranian suicide bombers with their vision of the 12th Imman seem to have them too.

The other thing thats possible is that so much of people's lives are spinning out of control that its easier to focus on a fantasy than to admit that we are all scared and powerless. Look at this key post. I'm lucky in that I'm in oil exploration and prices are rising, but if I love my home and don't want to move to Argentina or Costa Rica (true most mornings) there's really not much I can do for the 17 months, and there's no telling what that bunch is going to do. Attack Iran and murder a few million more? Short the market first and take the cash overseas and into gold, stored on their Paraguayan fiefdoms? Dare the world to come after them with the Praetorian Guards from Blackwater and tactical nukes, keeping the rest of their army at Dubai in the new Haliburton headquarters?

Bah, Humbug, I can get seduced into this craziness too!

And I know its happening.Part of and possibly most of the oil field manufacturing has moved from factories and machine shops in oil field towns like Houston and Fort Worth to where its just assembly of foreign parts and a US sales force. The oil patch equipment is made closer to where that bulky, hard to ship stuff is used. I don't know if the industries are going to survive this new downturn in boom times caused by the narcistic management style cutivated by the corporate-owned media. The guy who owned the local machine shop with 30 good paying jobs being a hero at church and at the little league game of the kids he'd bought shirts for has been replaced by the cost-cutting accountant who ships the jobs overseas. Bob Ebersole

thx Luís interesting perspectives – although slightly above my head for some of your eco-tech phrases.
But I can tell charts from other stuff when I see them.. … (…freely after Bush)


What oilmanbob is flying just above here is beyond me (?) but any doom talk does not belong associated with your post Luis..

Luis,

As we've discussed here before we face a ramp up through the first of the year and then two quarters of very ugly ARM resetting here in the United States.

We see news about bank runs in the U.K. and hear rumors of pending trouble in Spain, but is there a simple, well laid out resource that will explain where and when the trouble will start?

I wonder who is holding the bag on that half a trillion dollars worth of ARMs, or is that situation so complex no one knows exactly where they are? It would be nice to see a global distribution map, but I suppose no one is talking in hopes they can unload their troubles, as the Canadians recently found out to their dismay.

Is there value in arranging one's finances here so bank deposits are stored in euros rather than dollars, or is the infection just a step behind for the other currencies?

-SCT

It's interesting that today we have the US budget for defense -- a whooping 648 Billion dollars. That is about 2000 for every man woman and child in the US. The amount for defense is about 1/4 of the total 2.8 Trillion dollar budget. Is this really necessary?
Looking back on 2007, we paid 243 Billion in Interest on debt. All this unnecessary spending is really putting the squeeze on the US$ as we accummulated more debt to fun our excess. Not only we the US consumers are over our head in balancing our finance; but the whole government as well. The US$ will keep falling until this problem is addressed.

It seems that everyone believes the dollar is going lower. I presume those who intend to make money on this have sold the dollar short.

One thing is that the crowd never picks the turns, but sometimes makes money following the crowd until they all get a big surprise and then get fleeced.

Looks to me that everyone is down on the dollar. I think that it is likely that it will surprise everyone and gain against the Canadian, Australian, and South African currencies, and maybe the UK pound. It probably will continue to lose against the Japanese and Swiss currencies.

Just my take, but I would not put money on the line at this point.

Unfortunately, that particular index is fairly arbitrary.

Over half of the index's weight is assigned to the Euro, even though the EU accounts for only $550B of the US's $3,650B total trade (imports+exports), or just 15%. Similarly, the EU accounts for only 25% of non-US world GDP (by PPP).

And even those numbers are too large, since the EU includes the UK and Sweden, whose currencies are accounted for separately. Adding in their representation, 3/4 of the index's weight is EU countries, meaning it's an extremely narrow measure.

By contrast, this index compiled by the St. Louis Federal Reserve, is "[a] weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners." 26 countries or regions are listed, including all of the ones on the other index, plus other key currencies like the Mexican Peso - key because it's the US's fourth-largest trading partner after the Euro area, Canada, and Japan - and China's renminbi (fifth largest).

According to that much more representative index, the US$ is just about down to where it was at the beginning of 1997.

I think this is public (the word public is in the URL...), but here's a list of global currencies and their % change against the dollar year to date for 2007. It's from the Wall Street Journal Online.

It's interesting to see which currencies we've been doing better than (some African countries, only a handful though).

The only thing keeping inflation in check is that China has tied the Yuan to the USD. If we imported everything from Europe we'd have 7-10% price inflation base on the weakness of the dollar alone. As it is, the Yuan shift should have resulted in 3.9% higher prices at Wal-Mart this year so far.

http://online.wsj.com/mdc/public/page/2_3020-worlddollar.html?mod=2_0032

Luis de Sousa, I have to agree with you on the dollar....there is no end in sight to its fall. If Uncle Ben decides on another 50 basis point cut on the Fed Funds rate we could see a 10% drop in the US dollar before the end of the year. One has to remember....Americans cannot function without inflows from foreign capital in the tune of 3 billion a day. Unfortunately, foreigners are starting to realize that Americans are dead-beat consumers who can't pay their bills.

Northern Rock's run on the bank with thousands of depositors standing outside the branches a few weeks ago was due to the fact that their bank bought lots of American subprime mortgages. The fun has just begun.

The dollar decline will continue even though there will be up days. The important aspect to understand is the difference between Federal Reserve (FR) notes and electronic dollars. Antal Fekete in his recent article "Can we Have Inflation and Deflation at the Same Time?" explains

The outstanding issue of FR notes as of September 20, 2007, was a paltry $760 billion (note that a sizeable fraction is being hoarded be foreigners overseas), see: www.federalreserve.gov/releases, which is less than two tenth of one percent of the notional value of derivatives. Just a drop in the ocean of potential bad debt.

Most people fail to understand the difference of inlfated dollars. When analysts talk of the Fed printing dollars to fight deflation....it is the "electronic dollars" that are increased and not the printed FR notes. Most people who try to withdraw FR notes (dollars) of large amounts from their local bank realize the trouble it is. Many banks have a limit of say $2,000 dollars. You must call ahead to be able to withdraw larger amounts. Furthermore, even if you wanted to withdraw large cash amounts, today all you can get are Bank Drafts (electronic dollars).

There is a disconnect going on in the dollar arena. Between FR notes and the electronic dollar...again Antal Fekete

Helicopter Ben has just made a most unpleasant discovery. Earlier he has promised that the Federal Reserve will not stand idly by while the dollar deflates and the economy slides into a depression. If need be, he will go as far as having dollars air dropped from helicopters.

Time has come to make good on those promises in August when the subprime crisis erupted. To his chargrin Ben found that electronic dollars, the kind he can create instantaneously at the click of the mouse in unlimited quantities, cannot be air dropped. They just won't drop.

For electronic dollars to work they have to trickle through the banking system. The trouble is that when bad debt in the economy reaches critical mass, it will start playing hide-and-seek. All of a sudden banks become suspicious of one another. Is the other guy trying to pass his bad penny on to me? In extremis, one bank may refuse to take an overnight draft from the other and will insist on spot payment. A field day for Brink's. The clearing house is idled, and armored cars run in both directions up and down Wall Street delivering FR notes and certified checks on FR deposits.

Thus this is what happened to Northern Rock. It could easily move across the Atlantic to the United States. In reality "Stagflation" might be brushed aside by "inflation cum deflation"....again Antal Fekete...

What does this all mean? At the minimum it means that we can have inflation cum deflation. I am not referring to stagflation. I refer to the seemingly impossible phenomenon that the money supply inflates and deflates at the same time. The miracle would occur through the "devolution of money". This is Alf Field's admirable phrase "good money is driven out by bad" syndrome a.k.a. Gresham's Law. Electronic dollars driving out FR notes. The more electronic money is created by Helicopter Ben, the more FR notes will be hoarded by banks and financial institutions while passing along electronic dollars as fast as they can. Most disturbing of all is the fact FR notes will be hoarded by people, too. If banks cannot trust on another, why should people trust the banks?

Devolution is the revenge of fiat money on its creator, the government. The money supply will split up tectonically into two parts. One part will continue to inflate at an accelerating pace, but the other will deflate. Try as they might, the government and the Federal Reserve will not be able to print paper money in the usual denominations fast enough, especially since the demand of FR notes is global. Regardless of statistical figures showing that global money supply is increasing at an unprecendented rate, the hand-to-hand money supply may well be shrinking as hoarding demand for FR notes becomes voracious. The economy will be starved of hand-to-hand money. Depression follows deflation as night follows day.

This is a very interesting realization that most people fail to comprehend. The flight to safety will be out of electronic dollars to real ones. In the end as the financial system and the dollar declines further, it won't be dollars people will be hoarding...rather gold and silver.