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Thursday, August 14, 2008

Down

Money, it's a gas.

Hey look, gas prices are going down and there was no more drilling, Congress recessed before lifting their offshore ban. Why, it's a miracle.

Except for it's not. See, the dollar has rallied. It's as high as it has been for months now. Last month the dollar was worth half as much as it was last year at the same time, and strangely enough, oil was selling for twice as much as it was a year ago. Now that the dollar has rallied, the price of oil is going down. Go figure, oil is sold on a world market but it is priced in dollars. Who knew.

By most people's estimates our consumption of gasoline is down 2-3%. And that can swing markets (especially those based on "what the market will bear" costs). It's a clear message to producers, you charged too much, the market has now responded negatively for the first time. Add that to the word that car manufacturers can move trucks or SUVs (except to the country farmers, or out in Wyoming which is having an energy boom). Although gas prices might go up for the short term. It seems that rebel action in Nigeria (well, we call them rebels) has cut production there by 25% until they can fix some infrastructure.

The dollar has also been helped by classic recessions (quarters of a shrinking economy) in Germany, France, and Italy. More importantly, the Fed has taken steps to shore up the dollar (like actually publishing just how much currency is floating around out there, which they haven't done for many months). See, the decline in the value of the dollar was intentional. It was even a 2000 Campaign promise by the current president. The devalued dollar has not been all bad for our economy. If there is a manufacturing plant in the US that bases most of it's sales on exports, why, it's been a boon. Take Caterpillar for example. They make expensive, big earth moving equipment. Just the kind of equipment that Canada needs to haul all that tar-sand out of the earth and that China and SE Asia is experiencing a massive building boom, all of which requires CAT equipment.

But, how's your budget doing? Mine, not so well. Because if this rally holds (and if you read that article, it's not a given) it will take years for the full effect of the fall to be felt.

Just on a tangent, this past month's tax revenues for the village were the same as last year, we don't expect it to hold. One of our industries (that has cut staff to one third) has been working overtime.

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