http://www.cato.org/pub_display.php?pub_id=13024
The Weak Dollar Problem
by Steve H. Hanke
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For the countries — like the oil producers in the Persian Gulf — the U.S. dollar bloc and fixed exchange rates are a necessity. These countries are mono-product economies, and their “product,” oil, is invoiced in dollars. Accordingly, if a floating exchange-rate regime were adopted, their nominal exchange rates would fluctuate erratically as oil prices fluctuate. When the price of oil rises (falls), the local currencies would appreciate (depreciate). Without a currency link to the dollar and a nominal anchor for its price level, the oil producing countries would experience a wild roller-coaster ride — one distinguished by deflationary lows and inflationary highs.
Thanks to the Fed’s weak dollar policy, the U.S. faces an inflation problem and so does the rest of the world. The weak dollar and the lack of “flexibility” — properly understood — also threaten the free flow of capital and the stability of the international monetary system. It’s time for the Fed to start focusing on the value and stability of the U.S. dollar.
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As a fat old white guy injineer, it would seem that any thinking person would recognize “the dollar” has failed in one of the definitions of money.
“Money is a matter of functions four, a medium, a measure, a standard, a store.” He repeated that four times like poetry. “Six Characters in Money: Portable – Durable – Divisible – Uniformity – Limited Supply – Acceptability.” — CHURCH 10●19●62 (Vol 1) 978-0-557-08387-9 page 110
It’s no longer “uniform”. And, it no longer functions as “a measure”, “a standard” or “a store”.
Imagine baseball or football, where each year “a yard” got smaller? Or larger?
In the grocery store, packages stay the same or get larger, while the contents shrink. And, the makers pray the consumer doesn’t get wise.
(What was the name of that Olive maker that destroyed his business by saving one olive per bottle? The consumers disciplined that company out of business.)
We’re on the road to be like pre-WW2 Germany with raging hyper-inflation.
At least, when the golden dinar becomes the world’s standard, we’ll have honest money!
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Hanke, Steve H. (2011, April 15). The Weak Dollar Problem. Retrieved April 18, 2011, from The Cato Institute Web site: http://www.cato.org/pub_display.php?pub_id=13024
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