The Economy: US and the World

There is already some ominous sign of this. A few days ago, Venezuela declared that it will no longer sell its oil in dollars. Currently there are Iran, Venezuela, and Russia that have decided to trade their oil and gas in other currencies. In addition, some Arab countries have started to de-peg their currencies from dollar. For these countries peg to dollar has meant importing inflation and they are trying to stabilise their economy. As dollar decreases in value and more and more raw-material producers switch away from dollar, this de-pegging will only increase.

	The Economy: US and the World
	BREAKING NEWS Putin agrees to chair Russian government after election Dmitry Medvedev becomes Russia's new President War on Iran: Unleashing Armageddon in the Middle East
	Earthquake in China kills hundreds, buries tens of thousands alive More...

Let us look at why this happens. China buys oil in Euro from Iran. It then produces gadgets and sells it in dollar. Naturally the dollar prices of Chinese goods increase. The US and others that use dollar or are pegged to dollar will see an increase in prices of their imports which is passed to the consumers. This means importing inflation. The countries that have pegged their currencies to the dollar naturally do not wish to import inflation and cut their loss. (Please note: raw materials in general are increasing in value, regardless of the currency. There is not enough space here to discuss this matter in detail)

This will put further pressure on the dollar contributing to its decline. This, of course is not good for the US consumers. When times were good (illusory) US kept its inflation in check by importing goods from countries such as China, India, and other places; where imports were paid with dollars. Now some stuff has to be paid for in Yen and Euro both of which are appreciating in value against the dollar. At the same time oil and gas prices have increased tremendously, not only in dollar term but also in other currencies. All these things mean that US has to pay many more dollars for the goods that it imports. In simple terms, US’ inflation is rising rapidly. In my opinion, the US government is not telling the American people the real truth, fearing further collapse in confidence.

The outlook for the US economy

When recession hits, the government usually starts deficit spending to increase employment. At the same time the interest rates are reduced to stimulate economic growth. United States is now in an unenviable position of entering recession with very low interest rates, huge deficit and declining dollar.

Become a member of Pravda.ru online community