More on $$, Gold, and Oil
Earlier CGF post
Once again the dollar is down, and oil and gold are up. Why does this happen? Gold and oil have intrinsic value, while the dollar has fiat value. When the Fed dropped the federal funds rate last week, demand for the dollar dropped (the old supply and demand from Economics 101!). International investors prefer the euro to the dollar and so the dollar drops in value via the mechanism of Adam Smith's "invisible hand".
If the demand for gold or oil were steady (and for the sake of argument let's say that it is!), the price of oil would naturally rise. Since investment grade gold cannot be consumed (of course some gold is consumed in electronics and jewelry!), the demand for gold is basically steady. But oil is another case. Oil reserves are either stable or declining, and international demand for oil is increasing. So on the supply and demand curve (supply steady or declining & demand increasing), oil is on the rise!
What does the drop in the dollar against gold and oil mean to the average consumer? Not much with regard to gold, unless one is shopping for jewelry! For oil, it makes a giant difference! So much of one's disposible income is expended on energy: oil supplies the power plant, pays the trucker, is built into the cost of many products and services, fuels the car! For us in a common week, we consume 15 gallons of gasoline. At $ 3.00 per gallon, we expend $ 45.00 per week on gasoline. A year ago that gasoline was $ 2.20 per gallon. Thus for us, we are spending $ 12. more per week on gasoline alone. At the individual level, that is an extra $ 600 per year. Not much to some perhaps, but at a national level on gasoline alone billions more are being sucked out of the economy (and off to Saudi Arabia!). This impacts restaurants, and retail consumption.
How does this balance out? Well the drop in the dollar makes the cost of United State goods and services less expensive to consumers in other countries and the cost of other countries' goods and services more expensive to us in the United States. Thus exports should be increasing in coming days and imports decreasing. (It shouldn't impact imports from China as the Chinese currency is pegged to the dollar).
Some links one may find interesting:
Effective Federal Funds Rate
Dollar Slumps to Record on China's Plans to Diversify Reserves
Oil Rises Above $98 to a Record as U.S. Supplies, Dollar Drop
Gold Rises to 27-Year High on Oil; Silver Gains to 26-Year Peak
I posted this on SI a few days back. I dont know if anyone read it. It talks about a guy who is basically redoing how cars are put together under the hood. In the first few paragraphs he talks about his newest design which will be putting a turbine engine in a H3 Hummer as well as an electric motor. It will burn bio-diesel fuel with a hydrogen-injection system.(basically able to pull up to a diner and dump in fry grease. He says that it will double the horse power from 300-600. He also said, conservatively, it will get 60mpg, 2,000 foot pounds of torque. He said that this 5000 pound vehicle will be able to do zero to 60 in 5 seconds.
ReplyDeleteHe is also working on another car that he is hoping will get 100mpg.
The greatest thing about this is that he uses standard parts from manufacturers(apart from the turbine). Now why cannot manufacturers design something like this?