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The Unintended Consequence of the Weak Dollar.

It was reported on CNBC today that if the dollar were stronger, oil would sell at 65 dollars. Take away other props and the price of oil based upon current demand would be 40 dollars per barrel. Yet we sit near 80 bucks a barrel, with a desire on the part of the oil sharks to push it to 100 dollars!

The unintended consequence of dollar depreciation is the lack of purchasing power by the consumer. The consumer could be paying down his balance sheet more quickly if a strong dollar would allow him some modest money left over. As gas and food and apparel and health care march ever upward, the consumer has the choice to walk away from debt or just continue to live in zombie land like the banks. Millions of consumers are paralyzed like the banks are!

So then, as the American consumer needs a raise which cannot come from companies competing in a global marketplace, he is getting a decline in his purchasing power. The golden goose of world prosperity was wounded by the housing ponzi scheme, and is being wounded further by the mad spending in Washington under both administrations as they continue to steal from our treasury and our future. 

It is unlikely that our recovery will be robust without wage increases since recoveries sans bubbles need wage increases. So the government has one of two choices, either inflate and create more debt and subject the consumer to more debt, or realize that the consumer is very fragile and needs a break and a stronger dollar, a raise if you will.

It will be interesting to see if the government puts an end to this bubble reflation and even seeks out some disinflation. After all, we have had years of inflation of assets. We have had, as Bill Gross says, exploded assets by 15 Trillion dollars too much.

So, we will see if the government actually gets this and acts to protect the wealth of the nation. If the decline of the dollar continues, asset inflation will spike, and Americans just cannot afford it. Surely that cannot be the intended consequence of the policy of the Obama administration, but rather a very dangerous side effect that could sicken us all.