Saturday, October 20, 2007

Freedom to Boom and Bust

Do Americans have the freedom to choose their currency? The U.S. dollar's sinking is actually compounding the rise in oil futures. Overseas investors awash with dollars get the potential upside of oil price increases and temporarily turn their deflating currency into a mineral based asset. An AP report had this to say:

What is clear is that oil has become a magnet for "hot money" from hedge funds and other momentum investors betting that the trend for higher prices still has a way to run. The dollar's decline, which makes dollar-denominated oil futures a bargain to overseas investors, also has played a role in the recent run up.

Only what's cheap to foreigners isn't cheap to Americans struggling paycheck to paycheck. Didn't those same hedge funds and investment houses package high risk mortgages as investment quality to start this whole mess? CNN Money weighed in on a possible conundrum:

The run up in oil prices was also significant in that it revives fears about whether it will drive up inflationary pressures enough to limit the Federal Reserve's ability to cut interest rates further, even if the economic growth deteriorates enough to warrant more cuts.

Between lost nukes and government recalls of dangerous products, it's starting to feel like the Carter White House years. That we could end up in an economic black hole again isn't the least bit comforting.