Thursday, May 8, 2008
Speaking of grading on the curve, what's up with the dollar?
In the middle of March this year, the dollar was at record lows against several currencies and commodities, some of the price levels never seen before. Here are several of the thresholds reached, with an asterisk marking the prices that were all time records.
Gold: over $1000 an ounce *
Silver: over $20 an ounce
Crude oil: over $110 a barrel *
Euro: over $1.55 *
Swiss franc: over $1.00 *
Canadian dollar: over $1.00 U.S.
Japanese yen: over a penny (98 yen for one dollar)
Since that time, there's been plenty of bad news for the economy, but much of it has been not as bad as economists expected, so the markets have responded by propping up the dollar. For example, the economy lost 20,000 jobs last month, and the markets went UP on that news, because forecasts thought the losses were going to be closer to 60,000. Yay, lower expectations! (Note: most economists think we have to GAIN 140,000 jobs or more in a month just to keep up with new people entering the job market, so losing 20,000 job in a month is very bad by any objective standard.) Likewise, the preliminary numbers for the GDP shows a yearly growth rate of 0.6% for the first quarter of the year, which is anemic, but considered good when some predictions thought it would show recession, or actual negative growth.
Since mid March, the currencies and commodities have fallen back, some quite steeply. Gold sells for $868.90 an ounce today, over a 10% drop from the high water mark. Likewise silver, now at $16.57 an ounce, has shown over a 15% drop from the $20 an ounce price. The euro, which looked poised to cross the $1.60 mark, is at $1.53. The Canadian dollar is near 99 cents, the Swiss franc is back below 95 cents and it takes just over 104 yen to buy a dollar.
So the dollar is benefiting from some very lax standards for what constitutes good news. Of all the currencies and commodities, only one is still kicking the dollar's behind over the past six weeks, and that is crude oil, the true world currency. Crude crossed $120 a barrel this week, again a new record, and has stayed there for several days. Riding my bike through Oakland for a job interview yesterday, unleaded gas was over $4 a gallon at every station. Historically, the prices are about 10 cents a gallon lower 10 miles down the BART tracks in San Leandro, but it's hard to call $3.90 a gallon for gas a bargain with a straight face.
We can't count on the government to do the right thing, especially if the McCain-Clinton proposal is the best idea coming out of Washington these days. I recommend doing all you can to change your lifestyle to make yourself less personally dependent on crude oil. Drive less, buy local food when possible, if you can afford a car with better gas mileage, buy it. While crude oil is getting tougher to get out of the ground in a lot of places, these price increases reflect a market controlled by speculators more than they reflect an actual shortage in the availability of oil.
While free market fetishists love to talk about the invisible hand, another body metaphor is now more apt. The petroleum market is screwing us, all of us, whether we drive or not. It will continue to screw us until we fight back.
Gentle readers, it's time to start fighting.