With the world in economic turmoil, there is one fascinating engine in the American economy gaining strength: the dollar.
This would seem somewhat strange. Before the crisis, the dollar was clearly losing ground to the euro as the reserve currency of choice. This can be seen by the changing paradigm in the world oil markets, as Russia and members of OPEC have expanded the sale of oil to occur in euros. Iraq made a ton of money doing so in 2000.
If America is the epicenter for the global crisis, why is the dollar increasing in value? One of two things could be happening. From a skeptical point of view, the IMF or other large political bodies could be soaking up dollars, as they have in the past, in an attempt to create an artificial demand resulting in a higher value of the dollar.
Another possibility is that the global community could genuinely believe in the resilience of the American markets, even more so than Americans. For most countries, a president like Obama is the norm. Therefore, America’s move toward a socialist state doesn’t rattle international confidence as it does domestically. The international markets might see this as a necessary move, one that could create a better America.
This increase in demand for the dollar could be a double-edged sword. For one, it will increase the purchasing power of American’s in the international markets. However, it also places American goods and services slightly more out of reach for the international consumer.
The eminent threat caused by an increased dollar value is the contraction of export markets, which can create long-term complications due to its being accomplished harmoniously with unparalleled government deficit spending provided by printed money. Is this a recipe for success?
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