In 2008, why did commodities price rise as the dollar fell 40%?
If the dollar falls 40% in value, then it's worth almost half of what it was before. This means you'll need to give nearly twice as many dollars in exchange for a good, because the good hasn't changed in value. In a very simple way, that's a price rise!
Yes, the dollar price of commodities that are produced outside the US should rise as the dollar falls, other things being equal. In fact the same is true for the dollar price of anything produced outside the US and traded globally. As an example, think about French wine.
If the dollar falls, the French would get less Euros for their wine than before, if they charged the same dollar price. They'd respond by either selling less wine to the US, or by raising their prices. Normally they'd do a mixture of the two, so the result is both higher dollar prices for French wine, and reduced imports of the wine.
What goes for French wine goes the same for Saudi oil, or Zambian copper. The real world is more complicated that that exampe though, partly because the US makes up such a large part of the world economy. So if the dollar is falling because of a US recession, it means the total world demand for French wine is also falling by a significant amount.
That factor would tend to reduce wine prices, whereas the falling dollar would tend to push them up (at least in dollar terms). What's more commodity prices at any given moment are also driven by expectations and speculation, so it is not simply whether there is high demand for copper or oil right now, but whether traders think there will be high demand in the future. So in the real world, the price movement of commodities depends on a lot of complex inter-relationships that are hard to generalise about.
The price of the dollar is falling, in terms of the amount of other currencies it takes to buy one dollar. So you're paying less in euros, for instance, to get one dollar. So in that equation, the price of the dollar is the same as the value, and as the value falls, there's less demand for it?
But a bigger reason for the falling dollar is that the United States is running a massive current account deficit, which we're funding by borrowing from the rest of the world. We've been able to borrow at low rates, but that can't go on forever. A falling dollar is an automatic adjustment mechanism, which means there's an increase in exports from the United States and lower imports into the country, which helps rebalance the deficit.
And now that we're in an economic downturn, or maybe even a recession, what does that have to do with it? When you have weaker economic growth, the Fed usually lowers interest rates—one of the things that lowers the value of the dollar. So how does a falling dollar contribute to rising oil prices?
It's a little bit complicated. Oil is priced in dollars on the world market. When the dollar is weaker, foreign currencies are stronger, by definition.
That means people in other countries can buy more oil for the same amount of money. So let's assume oil is $100 per barrel, and $100 is equal to 70 euros. If the euro appreciates against the dollar by 10 percent, then instead of 70 euros it will take only 63 euros to buy one barrel of oil.
So that oil becomes cheaper to foreigners, and they can buy more. And do they buy more?
I cant really gove you an answer,but what I can give you is a way to a solution, that is you have to find the anglde that you relate to or peaks your interest. A good paper is one that people get drawn into because it reaches them ln some way.As for me WW11 to me, I think of the holocaust and the effect it had on the survivors, their families and those who stood by and did nothing until it was too late.
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