] The dollar index, a measure of the dollar against a
] basket of currencies, extended a slide to a nine-year
] low.

This is going to require a little explanation as to why this is important. A large portion of the US economy is dependant on imports. We'll start with cars. Currently the #1 domestic car manufacturer is GM followed by Ford and Toyota (yes, that's right, Toyota). The trick here is, no one makes a car anymore with all domestic parts. Toyota obviously makes a good number of their parts in Japan where they are brought over and installed in US cars, GM does similar things, primarily in Mexico, and Ford and Chrysler both do a good amount of their construction in Canada, which means the dollar sliding across the board will increase prices for DOMESTIC products. The sliding dollar will also cause increased pressure on import prices, so things actually made in other places will be more expensive as well.

Because we're an "import" economy, this means that costs are going up, but there is no concurrent increase in revenue, so wages (the demand side of that supply-demand equation remain stagnant. This also applies in other areas as well. The computers we're reading this on are most likely made out of all, or nearly all, imported parts and just assembled here, and those two products are not unique, far from it in fact.

The results on the international markets has already started this morning, with the Nikkei (the Japanese version of the Dow) down a bit under a percent, with expected slides in US companies on the German and British exchanges later today. We'll see how that goes.

One thing that will prove interesting will be oil. With the dollar sliding, one would expect that the price of oil will increase further. This may not actually be the case, but there's a pretty big BUT at the end of this. Oil prices are universally done in terms of US dollars. If you're in Germany, you take your Euros, buy dollars and then use those dollars to buy oil. This is something that was done by of all people OPEC. Thirty odd years ago, their #1 trading partner was us, and so to make oil transactions simple globally, they benchmark the price of oil in dollars. It worked for them and so now, all oil exporting companies/nations handle this pretty much the same way. They sell oil for dollars.

So, what happens to the price of oil? Good question. Other countries, notably European ones are in theoretically good shape. Their money is worth more, so oil costs less. Some other countries, notably Japan are going to get squeezed. They export heavily to us, so the sliding dollar hurts them, pretty badly in fact. But, the sliding dollar also means that oil is less expensive. The bottom line I think is that the sliding dollar hurts them more than it helps them. Oil is cheaper, but because we're not buying as much stuff, they don't need the oil and so they aren't helped by the decreased costs as much as they're being hurt by the decreased demand. The net result is, two of the three legs of world consumption are on their way down, with maybe the Europeans holding ground.

Now for the but. The single biggest thing holding up the US economy is that petro-dollar relationship. Because oil is sold in dollars, everyone needs dollars. There's no way around it. Unfortunately, right now the most stable, and strongest money in the world is, the Euro. If OPEC decided to recertify the relationship and change it from "petro-dollar" to "petro-euro" well, who needs dollars?

If anything of that sort happens, what happens to the US economy has a good chance to make the Great Depression of the 30's look pleasant. 80 years ago, the US was one of the more heavily industrialized nations in the world, but nothing like today. Every segment of the US economy is oil driven. Transportation (diesel, gas, jet fuel), energy (natural gas, heating oil, propane), maunfacture (oil derived plastics and rubber) and even agriculture (motor fuel and synthetic herbicides and pesticides) are all dependant on oil. Losing the petro-dollar would collapse that end of the economy and take the rest of it down with it.

That's the doom and gloom version. The reality probably won't be like that, but to avoid it we need to make some pretty big changes in how we do things. Unfortunately, I haven't seen the kind of foresight that will requeire out of the people who just got a "mandate." And I don't see other countries around the world real interested in helping either.

My footnote is, a week ago, I didn't think we had time for "four more years." This bit of news isn't reassuring.

Yahoo! News - Dollar Hits New Low, Gold at 16-Yr High