030208-dollarDevaluationProspects.txt

keeping it simple
dollar devaluation. globally, the commodity asset bubble strengthens, putting a greater strain on productivity. in short, inflation is generalized throughout the world economy. inflation has more harmful effects on those economies with a lower standard of living. dollar devaluation leading to unprecedented rises in the costs of food and energy. Additionally, the dollar has the advantages of seignurage to discount some of the inflationary effects and reducing the value of dollar reserves held by foreign governments. dollar devaluation is exporting the strains of the us economy globally.
possible reactions.
finally, dollar devaluation with commodity inflation will undermine confidence in the dollar and lead to challenges to the dollar's role of maintaining value as international currency.
so far the euro zone has attempted to reduce the infationary impact of the dollar's fall by refusing to follow the dollar in devaluation. this will limit the effect of stimulus to us exports that might be expected from the dollar's decline. southeast asian countries will additionally attempt to maintain their export market share by devaluaing their own currencies in line with the dollar. this will threaten generalized inflation throughout the region.
almost certainly the bubble in commodities must be squeezed before areas other than the us can reflate. but how? the oil producers will simply lower supplies to keep prices high. perhaps the prices of other raw goods sectors are not so susceptible to concerted price actions. coal, potassium, sillicon, gold, copper, etc. perhaps, wheat, corn and foodstuffs even less. hopefully that will be the case and much more food can be brought online with government subsidies. perhaps china will lead the way here to a rationalization and greater efficiency in its agriculture.
profits worldwide will tend lower as the us enters recession in spring 2008. lax monetary policy and gov stimulus will help the us and the world econ avoid the worst. but the consequent inflationary effects of dollar devaluation will considerably weaken growth in south-east asia and even stop growth in euroland.