Wednesday, December 21, 2005

The Dollar

The Dollar is rising against the European currencies, and Gold and Silver are dropping in Dollar evaluations. It is because of the increase in American GDP of 4.3%, which counteracts the bad news last week of a widening Current Accounts deficit and an end to the Fed interest rate hikes. Everyone may be celebrating, but it may be premature.

Energy prices are still rising, both due to Speculation and to Shortages, keeping pace with the increase of Consumer spending of 4.1%--the major cause of the rise in GDP. Consumer Spending, though, will undoubtedly deflate after the post-Christmas Sales (Author-estimated 9%). The present Interest rates imposed by the Fed will triple their impact at this point, as Grandpa and Grandma stop buying Presents. The Energy prices, though, will not be going down at all. It remains extremely hard to imagine an increase in Housing Starts or In-place Home Sales, so the Spring Construction burst will probably not spurt, but fizzle. The trouble of tying economic growth totally to Consumer Spending lay in the latter's commitment to seasonality. lgl

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