Archive for November, 2009

Oil Prices and Stock Gains a Result of Falling Dollar

Several things can effect the value of a currency, and things leading to a fall in worth typically include:  low interest rates, large government deficits, heavy consumer borrowing, and a sense that money is being spent on less than productive investments.

Depending on your perspective, this may be a good thing or a bad thing.

A falling dollar claims to make debt easier to pay back – but the experience of Japan through its series of bubbles and stagnation undermines that theory.

The practical fact is that stock prices and oil end up moving upward together.  Despite the fact that business gets more expensive in many ways, people looking for something to spend dollars on will inevitably buy equities and commodities until the cost of the commodities seizes up the economy and triggers another deflationary spiral (remember what happened when oil hit $150 a barrel?)

Unfortunately, the goal of the Federal Reserve seems to be an attempt at bringing us back to that precipice and hitting the brakes this time.  Why we need to go back to the edge of the cliff at full speed before hitting the breaks – well, I’m not so sure.

Dollar slips, Gold and Oil Rally

If you’ve got a bunch of money in the stock market, the rise in the Dow Jones Industrial Average might actually be good news for you.

For the rest of us, the technical movements behind this recent surge paint a much bleaker picture of what’s going on.

The primary mechanism driving equity prices at the moment is the continued fall of the dollar.  At this time, gold is testing prices near $1100 per ounce and oil is back up over $80 a barrel for the first time since the great crash first undid runaway inflation.

For workers, anything short of a huge payraise is actually turning out to be a pay cut.  As the cost of living continues to ramp up, people continue to lose jobs and the government continues to run up our debt.

In a few months, as the incentives and stimulus spending is exhausted, we will also face a new round of mortgage crisis as option-ARMs mature and commercial real estate continues in its downward spiral.

Hold on tight, this economic ride isn’t over yet.