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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

8 Jul 2008

Weak dollar accelerates the Credit Crunch

We have seen the pro's and con's of a weakening dollar over the last six years or so affecting imports and exports. For the nations that mainly import (which is surely most of the Western world?) It has basically meant a rise in prices and especially the price of oil. It's still funny to me to hear the US general public going on about how much they pay for their fuel. They would be flabbergasted to hear how much car owners in the UK pay for fuel.

The price of oil in the US affects world trade even though other currencies appear strong. Historically, we have relied on the US economy to stabilise the Global economy, and now there is talk of the Euro taking over as the next stable global currency. Of course the Euro has been coming into it's own over the last few years whilst the dollar has been in decline, with many more countries accepting the Euro as it's curency (the UK being the most notable exception).
The decline of the dollar has seen Europeans acquiring US companies and European visitors spending freely on the bargains that are to be had in the US. These anecdotal occurences will not be enough to bolster the Dollar.

The question remains though, what will happen if the US Dollar goes into free-fall ? (and quite honestly the credit-crunch effect is only going to hasten this event...). Can the Euro just slide in to occupy the gap left by the Dollar? Seamlessly replacing it almost like a sleight of hand trick?
I'm not sure that the world is ready to place it's trust in what is still in global terms a fledgling currency, but there seems no real alternative. The UK currency - Pound Sterling is certainly well-established, but although it is mightier than the dollar right now, I am sure that financial collapse in the US would have an undeniable knock-on effect on Sterling rendering it useless as a global alternative. Is the Euro considered sufficiently removed from the US economy to be able to ride the storm of a free-falling Dollar?
Maybe, but I would prefer not to have to find out....

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Mizé said...

Hi. I think you´re right, taking the date references doesn´t diminuish a blog´s value.
I Liked your blog, specially the topics you´re posting.
Here in Portugal we had Escudos until 2000, the year Euro arrived. The conversion wasn´t good for us, in general prices went up and we lost with this change. Medium class families are now struggling to keep their economical power to the level they had before. We now have more poverty and more unemployment, and I think that as a country we lost a part of our identity. We are now at the tale of Europe, behind the big forces: France, Germany, etc.
When it comes to Dollar, things really changed in the passed ten years for US, but I think the dollar is going to remain the "world leader", unless "a miracle" happens, like US stopping the wars and quit producing war toys. Can´t you see? It´s all about a "war-petrol" power and business.

jay said...

Thanks for your input, I have really only considered the Credit Crunch as it effects the UK and US so far. I am due to post on the differences between these two and it got me thinking about how it might effect other European countries...