Threat of Japanese Intervention Stops Fall of US Dollar, For Now

Market fears of a possible intervention by the Bank of Japan to support the dollar helped the U.S. currency recover its poise Friday after it hit a 14-year low against the yen.

By mid afternoon London time, the dollar was up 0.3 percent on the day at 86.82 yen. Earlier it had sunk to 84.81 yen, its lowest level since mid-1995 as currency traders sought the sanctuary of the Japanese currency amid mounting concerns about the fallout from Dubai's financial problems - a government investment fund, Dubai World, asked creditors if it can postpone payments on $60 billion in debt until May.


Read the whole story here.

Inflation in the US: The Candy Bar

So, I thought I'd lead off the story of the declining dollar buy illustrating how inflation has slowly but surely eroding our purchasing value. I'm choosing to illustrate this by borrowing from my own life and talking about the price of candy bars.

When I was a little kid, say six years old, I was able to buy a candy bar at the local grocery store for ten cents. I can be sure of this, because my dad used to give me a quarter and I would ride my bike up to the local Lucky's and I would buy two candy bars and pocket the nickel in change.

Last week when I was a my local super, candy bars we're priced at $.99 a piece.

What this means of course is that in 35 years, the price of a candy bar has risen ten times! Or looked at another way, on average, the price of my candy bar has gone up about 6.7% every year. In Econ 101, Professor McKibben told us that inflation between 2.5% and 3% was normal. So what gives?

From what I can recall, I believe that I was paying about $.50 for a candy bar just three years ago. That means that nearly half of the price increase in candy bars has come in just three years, for about a 24% increase in price per year.

This is an example of what I (and others call) insipid inflation. Prices rise, and dramatically so, but because the government say inflation is low and contained, we believe them and go about our business.

It is precisely this kind of inflation that shows just how weak the dollar has become, but as we'll see in the coming months, this is the tip of the iceberg.

Shifting Gears: The Declining Dollar

I've decided to fire up the old blog again, but this time I am going to be re-focusing my posts broadly around the weakness of the US dollar.

Why the reason for the change? I think we're on the cusp of a very tumultuous time in world economic history. In the same way that a basket of factors lead me to believe the real estate market was going to collapse three years go, I now see a different set of factors that is leading me to believe that the American dollar is about to be worth less than it has in quite some time.

For example, the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a fresh 15-month high of $1.5141.

I think this is just the start, the implications are epic and that there is a great deal of risk coming our way; there's also the possibility some opportunity as well.

Over the coming months, I'll share my thoughts with you and would invite you to share yours.