How far can US Dollar fall? What’s the impact on US and world economy?
Tania Sailor
Nov. 10, 2007

US Dollar is falling because Bush Administration wants it to fall. It helps increase US export. But the whole thing is not that plain and simple. As Dollar falls and Gold rises in price, the oil in US Dollar terms rises very fast in price. The little improvement in trade balance due to rise in export is counterbalanced and then some by the rising imported crude bills.

The US Dollar can fall for quite some time unless something is done seriously about alternate fuels. The ethanol from corn is a solution that is really effective if crude rises above $250 a barrel. In the short run dollar can fall badly as Federal Reserve signals massive rate cuts to try and avoid a recession in 2008.

The chances of a recession is great. Dollar can fall another 5 to 10%. Then what?

Euro Zone will hit a nasty recession in 2008 unless Euro falls below $1.38 per dollar. That is not going to happen and therefore recession in Europe in 2008 in inevitable. Asia will eventually go into a bubble burst recession and finally a depression. Then the whole thing will boil down to which country is facing deeper recession. That is where US Dollar will outperform every other currency of the world.

US will hit a recession and perhaps a depression in the next two years. But US economy relative to the rest of world economies will perform far better. That will be the main reason why US Dollar will rise again. In 2009-2010, after US economy hits the depression level slowdown, outsourcing and imports will be curbed. The US trade deficit will plummet for the first time after many decades. From now to 2010, US Dollar will build a base after moving down somewhat.

Smart investors have started accumulating US Dollar again.

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