Brahmason's Blog

If dollar goes up because american competitiveness mounts due to regaining leadership in production technologies and skill , that is healthy and the world will profit from it .

If dollar strengthens because of speculation or because other world economies are in difficult financial situation , then the world economy collapses .

The current account deficit ( external commercial balance ) is the best indicator of the competitiveness of an economy .

USA’s last reading shows the highest deficit in many years ( 52.000.000.000 $ ) and that happened while dollar was at 1 € = 1.34 $ and 1 $ = 84 Yens .
Currently the dollar seems on a rally to 1 € = 1.20 $ and 1 $ = 75 Yens . ( the yen is also on  an unjustified strengthening pressure )

With those rates american current account deficit will mount close to 60.000.000.000 $ per month ( japanese exports to USA are very resilient to yen fictious strength ) and although petrol and other commodities will as a consequence pause their increase for the dollar economy , core inflation will mount faster than a GDP increase that will be based on a fiction welfare resulting from the fictious increase of purchasing power of incomes in dollars .

Initially this will have some positive effect on income tax revenue by the government but the prize wil be a deadly one , as american companies living on exports will definitely enter a critical situation that will cause bankruptcies and strong increase of unemployment that will finally have a dramatic influence in the fiscal debt of the country’s economy

In parallel the price of petrol and other commodities fixed in dolars , will be increasing for ailing economies in Europe that will see inflation go up and purchase power go further down , to increase their pains as those economies will only gain certain export capacity against USA where Spain for instance has been unable to increase exports even when the euro was worth 1.20 $ not long ago .

The dollar fictious strengthening will only be positive initially for very competitive economies like Germany , China and South Korea , but the collapse of non competitive economies will finally affect every one .

The only solution to prevent such imbalances is that gold should eventually absorb the losses of euro and yen .

Brahmason

Brahmason@gmail.com