Higher rates cause the dollar to strengthen, but they also inevitably slow down the economy. On the other hand, lower interest rates are positive for the economy, but often not for the dollar.Read the whole thing. It's simple and straightforward. Well, except for the "strong economy" part. That's probably confusing to Obama supporters. But then, almost everything is confusing to Obama supporters. See also: Petraeus, Gen. David.
Now, our economy has been strong for over five years and the dollar has fallen, more or less continuously during this economic upturn. Coincidence? No.
Since oil prices are denominated in dollars, much of the rise in the price of oil is due to the weakness of the dollar which is, in turn, due to low interest rates. Now that you know this, I'm sure you'll take the proper steps. Blame Bush.
Great blog. He makes a good argument for a steady increase, but I still think something else is superimposing on top of this to give us the recent spikes.
ReplyDeleteKelly, you had the rest of the puzzle in your excellent blog post about China and India subsidizing gasoline for their citizens.
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