The Blog

The Almighty Dollar?

Why the dollar continues to do well in currency markets and where it's headed next.

11:00 PM, Dec 8, 2003 • By IRWIN M. STELZER
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That's not all. Oil prices have remained above the top of the OPEC cartel's target range of $28 per barrel. But producing nations are finding that they can buy less with their dollars. Whereas the Saudis would once have had to sell about 5,000 barrels of oil at the top of the cartel's price range in order to earn enough dollars to pay for a brief, £100,000 visit to their favorite haunt, London's Dorchester hotel, they now have to sell about 6,000 barrels at that same price to pay for enough sterling to cover the cost of their stay. So, they have in effect abandoned their $28 ceiling, and are keeping production low enough to support prices in excess of $30 to offset the reduced purchasing power of their dollars.

Bush asked for restraint. But Saudi oil minister Ali Naimi isn't restraint minded. So he used last week's OPEC meeting to announce, "The dollar is weakening, and purchasing power is quite weak, so [the current high price] is okay." After all, Naimi wouldn't want to risk his job, and possibly his neck, by allowing the living standards of the 5,000-7,000 Saudi princes to decline. Bad news for American consumers.

Still, the negative economic consequences of a continued fall in the dollar are unlikely to overwhelm the forces that are driving the U.S. economy forward. And if the decline does not become the "rout" that some are predicting, it should begin the healthy process of whittling away America's trade deficit.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.