David White

The U.S. Dollar: A Six Month Outlook

It does look like some inflation is in the cards. Actually it may be the least painful way to allow the banking industry to survive the current crisis. Specifically, if there is inflation without the Fed raising interest rates, housing prices will effectively become cheaper. This should allow more people to buy. This in turn would end the current loan debacle. The loans would slowly become "good loans" again. A major bailout might not be necessary. A little inflation in the current situation might not be a bad thing.
Actually a lot of this inflation has already taken place in the devaluing of the dollar relative to other currencies. Today the dollar actually went up when the ECB raised their interest rate (and the US payroll numbers were bad). This could be the old up on rumor down on news scenario. Alternatively it could mean that the global community approves of current Fed policy (more so than ECB policy). The European banks are actually having a lot of the same problems the US banks are having. However, the ECB apparently thinks the European economies are strong enough that they can weather this current storm without help. This should help the US economy. It should make the European businesses just a little bit less competitive than the US businesses. Perhaps this is why the dollar was up today. Perhaps the dollar is stabilizing or even reversing course now. This would be good for the price of oil, which is now the major drag on the US economy. If we can conserve oil, that would help too.
Still the US needs to produce more oil in the near future. Apparently President Bush is trying hard to help oil companies accomplish this goal. Perhaps Congress should listen to him this time. Would it be better to live in a US still owned by Americans, albeit a very tiny bit more polluted by offshore drilling; or would it be better to be poorer in a country more and more owned by foreigners, with a tiny bit less pollution. This seems like a no brainer to me. The technology for drilling has improved dramatically since the offshore drilling bans were passed. It is time to reevaluate our position based on our current hard realities. Imported oil at the current prices is the most toxic factor facing the US economy. We need alternate energy as quickly as we can get it. The government really ought to subsidize it as much as possible. We are paying a huge price by importing so much oil. The trade deficit due solely to oil importation should be more than $500 billion this year alone. If you thought the stimulus package helped, think how much this huge deficit is hurting. It effectively takes that much money out of the US economy. We also need to do away with as much oil importation as we possibly can. Producing more oil is really the only way to do this.