[Here is the Bloomberg Headline: Swiss Franc Reaches Highest In At Least 40 Years Versus Dollar]
This is painful and sad and (go under the chart to the time box and click “max” all the way to the right) for an even longer term perspective check this out.
We haven’t seen anything yet. I think the tipping point was Pimco announcing it was getting out of U.S. treasuries, and now calling the Fed a Ponzi scheme. Hyper-inflation will now start accelerating. We’re already nearing $5 / gallon for gas here (probably by this weekend), and grocery prices are quickly following suit. Unfortunately, the government’s grossly imprudent actions of the past couple of years have bankrupted us. A lot of people are going to suffer. Cash for Clunkers anyone?
Currency devaluation has its benefits. It makes imports more expensive to the US consumer and US exports cheaper to the foreign consumer. Our trade balance needs this boost.
Fr. J.: You are correct, but that assumes there are American goods that foreign consumers wish to buy. As a country we have pretty much stopped making anything. However, eventually it may also mean that we begin to make things in our own country again. But that will have to overcome huge hurdles caused by government over-regulation and taxation, environmental restrictions, and no-growth and anti-business policies.
The worst will come if the US dollar stops being the international currency of trade — in oil and other commodities for instance. This gives it added value beyond the US economy – and strengthens its relative position.
A slide like this though is enough for people to reevaluate whether it really is the currency to use.
There is nothing surprising in this. Switzerland has a long history of fiscal and monetary conservatism whereas the US has a long and bipartisan tradition of profligacy. The Swiss Franc is probably the closest thing there is to sound money in the world right now, after gold and silver.
Historically, that isn’t that bad. In the 1970s the Dollar lost over 2/3 of its value vis-a-vis the Swiss Franc; between 1985 and 1988 or so it lost half its value, a comparable decline what’s shown on the linked website for the last 10 years.
[url=http://research.stlouisfed.org/fred2/series/DEXSZUS?cid=94 ]See the St. Louis Federal Reserve’s historic exchange rate chart.[/url]
Though the long-term trend is pretty crazy. In 1971 a dollar bought over 4 Francs, now it buys less than one
Re # 6
Fralupo,
1971 was the last year the dollar was backed by gold.
Unfortunately, our currency is now only backed by the “full faith and credit of the United States government.” ‘Nuff said.