The Year of the Dollar

Analyst Tom Whipple reminds us:

"Much of the recent run up in (oil) prices was based on this spring's "green shoots rally," in which many professed to see signs that the recession would soon be over, and that increased demand would send oil prices ever higher. The rally, which had its origins in a change in accounting standards allowing insolvent banks to pretend they were doing well for a while longer, seems to be slowing and may be coming to a close."

and worries about the debt that sustains us:

"The underlying cause for the dollar's weakness is the massive deficit the U.S. government is running, and the continuing sale of billions of dollars worth of treasury securities. This in turn has left foreign investors worried that the value of their U.S. treasury holdings will one day be worth much less than they invested. For the foreseeable future, these investors have nowhere else to turn, for the minute they stop buying or try to sell significant quantities of U.S. obligations, they would immediately crash the dollar and their worst fears would be realized."

but we can always blame someone else for our problems:

"As we saw last summer, there will be calls to break the dollar's link to oil by restricting or even banning speculation. How well this will work in a globalized world is anybody's guess. Unless there is worldwide agreement, activities banned in the U.S. could continue in Europe, the Middle East or Asia."