Avoiding $4 gas

Last spring, I was one of the few people who actually benefited from the near depression that our country experienced. While my family suffered from the declining stock market and economic crash just as everyone did, my friends and I were able to study abroad in London during the best dollar exchange rate seen in a long time. 
In fact, the spring study abroad class timed it almost perfectly, with exchange rates falling just weeks before we arrived and rising again just after after we left.

However, much to the chagrin of all those studying abroad now or those that are planning to, this time of dollar resurgence seems to have been extremely short lived.
The dollar continues to fall against most major currencies and its decline seems to be gaining momentum as it has fallen against the Euro in six of the last seven trading days as of the close of the markets Monday. 

It’s not really shocking that this is happening considering the major steps our government has had to take recently.

The massive government debt and spending, the fed’s zero interest rates and the buying of treasuries and mortgages are all things that are contributing to the dollar’s demise. 

However, what is shocking is the overall lack of concern the federal government has about it. In fact, Ben Bernanke gave a big speech on Monday and didn’t even mention the dollar (furthering that day’s declines).

There seems to be a belief in Washington that a devalued dollar will lead to better exchange rates in trade, and therefore a better overall economy. However, this logic is simply flawed.

The Bush administration tried this route before the economy collapsed and it gained relatively nothing except to protect a few export oriented companies and jobs. On the other hand, it did help to serve every American with higher commodity prices, and we are headed there again.

Sure, there were a lot of reasons for the commodity bubble, but one major factor was the decline of the dollar. Currently, oil and gold seem to be climbing lock in step with the dollar decline.

Harvard Professor Niall Ferguson recently predicted that the dollar could collapse another 20 percent from its current levels.

Add to that the recent calls by foreign nations and the head of the world bank to replace the dollar as the world’s reserve currency, and the 20 percent decline prediction seems plausible.

With oil currently sitting at 80 dollars a barrel, a continued decline in the dollar could lead to 3.50-4.00 dollar gasoline once again. If you thought Americans had trouble fitting it into their budgets before, let’s see how well a $75 fill-up fits in after this recession. 

The declining dollar has the potential to kill the current recovery by depressing the American consumer once again.

In order to stop dollar devaluation and rising costs of living, the Federal Reserve needs to raise interest rates to one or 2 percent, which will slow the type of lending that is responsible for lowering the value of the dollar.

One or 2 percent is the traditional level for interest rates during a recession, such as the one in 2003, and overall wouldn’t shock the current recovery.

However, it could help stop the dollar’s decline and prevent another growing commodity bubble.