One after another, the economists who took the lectern at last week’s monetary symposium at Jackson Hole, Wyoming, devoted themselves to the sub-prime debacle facing the American economy. There is the likelihood of plummeting house prices – one eminent professor talked of 40% declines, and their long-term effect on the dollar.
Need medium-term proof? Since the start of 2006, the dollar has collapsed 12.5% against the admittedly high-flying euro and nearly 15% against the pound. President George W Bush has presided over the transformation of the dollar from a deity among currencies to merely mortal.
Without raising prices in the country of origin, American citizens will see an increase in prices due to the devaluation of the dollar. Depending on the currency exchange rate, expect to see increased prices on all imported items. Everyone likes to point their finger at the big box stores, but every item manufactured and imported overseas could conceivably jump 10% and more for future inventory.
Oil prices, which are denominated in US dollars, have skyrocketed since 2004 from $37 to $80 a barrel. What if, the value of oil hasn’t changed for non US buyers, but the value of the dollar has declined? No, the dollar has not declined 55%, the price has been driven by wild speculation, but currency exchange has and will play a significant part in the price of oil and gasoline imports.
Exports of heavy machinery, Chrysler cars, and other goods by the US will become more affordable in overseas markets. Holidays in the States will become even cheaper than they already are for foreigners, to the benefit of non- US airlines (Air France-KLM, British Airways, Lufthansa). One reason airlines have transcontinental plans is because they expect the dollar to continue to fall.
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This article, Value of Dollar Drops for Overseas Investors, is just one of our articles from our Mortgage Crisis Daily
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