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Subject:  Re: Putting the housing downturn in perspective Date:  3/15/2008  1:19 PM
Author:  mandrake66 Number:  35578 of 501

My own take on oil is that it isn't being driven right now by supply vs demand (this will be a huge factor for a long time, but it's not the primary factor right now) or political instability (something nasty could happen at any time, but that would merely be a new factor that would need to be priced in on top of current prices) or fears of peak oil (I don't think we're there yet, new technology keeps pushing it off, but we'll get there before long). It's being driven squarely by the depreciation of the dollar, the currency in which oil is bought and sold around the world, the same as many other commodities.

If the dollar keeps depreciating, oil prices will keep rising. I need to re-educate myself a bit on what makes currencies rise or fall, but my simple understanding is that a currency rises proportionally to foreign demand for that currency (to purchase and invest in assets denominated in that currency). The weak outlook for the U.S. economy, the inflationary policies being pursued by the Fed, and our huge deficits are driving the dollar down, and until that stops oil will keep going up.

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