Cyrillic Partners

The Council on Foreign Relations has a nice explanation of the causes of the falling value of the dollar. It’s an important thing to understand, especially when people talk about the increasing cost of oil. The U.S. is a net importer of oil. When the value of the dollar falls, oil prices rise.

The falling dollar is getting the rhetoric up. Nobody’s worse than Henry Paulson. The Secretary of the Treasury has a knack for saying overly-defensive things that come off sounding insincere. Consider the last line from this story in the IHT:

“The dollar has been the world’s reserve currency since World War II and there’s a reason,” he said. “I put the U.S. economy up against any in the world in terms of competitiveness.”

Well, that’s not particularly reassuring.

So what’s caused the dollar to fall even faster? Fears that the Federal Reserve will cut rates again. Cutting rates may accelerate inflation and further send the dollar down. Stay tuned.

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