Posted 9/24/2007 05:36:00 PM by Douglas

The story of the incredible shrinking dollar.

All year, the dollar has drooped compared with other major currencies. Last week, after the Federal Reserve reduced interest rates, it fell even further – now at a level not seen since 1997. The Canadian loonie is even stronger – on par with the greenback for the first time in 30 years.

The last time that the buying power of the US dollar was this low was about a decade ago, according to Federal Reserve Board statistics. But the major difference was that the dollar was rebounding from its low point in the mid-1980s when the major industrial nations decided it was overvalued. It was also easier to make changes in the trade numbers because the price of oil ranged from $22 a barrel (in 2006 dollars) to $26 a barrel, and China's exports were tiny. The US trade deficit was about $230 billion.

This time, the dollar has been on the skids for the past five years. The price of oil is about $80 a barrel. The Census bureau reports the trade imbalance with China alone is $141 billion through July.

There's a lot going on in global economics, but the history is always the same. Indulge me, if you will, on this chart. Notice anything? Any big spikes? When do they occur? During wars? How the hell is a government going to pay for a war if they can't devalue the currency to absolve their debt? Enter the Federal Reserve, in 1917, and look at what happened to our nation's debt after that. It went through the freakin' roof.

Now it's just something we live with, ho-hum, The Fed jacked with interest rates again. But it's unique in that it's the one thing that effects every American when they pull a dollar out of their pocket to pay for anything, yet it's also one of the issues that's being ignored by every 2008 presidential candidate. Except one. I don't think I have to tell you where the Honorable Ron Paul comes down on the Fed.