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It is worse than what we see

The world is losing faith in the dollar. Since oil first started being sold in Euro's in Nov of 2000, the Euro has gained 63% to the dollar. When we stopped the sale of oil in Euro's after Saddam's fall, the dollar rallied a bit but now, with more nations selling oil in Euro's it is starting to not only slide due to that but due to other nations diversifying out of the dollar more.

The value of the dollar based on demand and demand is drying up. That means higher prices for all currencies the dollar is falling against. Also, those rising prices can continue to rise as long as the dollar drops whether we are in recession or not and whether or not there is a downturn in the world market. Stagflation is a real possibility.

Our tax and compliance policies can't compete against the ex-socialist nations that are moving to low tax on business, capitalist, pro-business policies. Their wages are rising rapidly while ours are barely moving in comparison.

I just checked on the Bureau of Labor Statistics site and looked at what wages have risen here (21%) to some other nations since 1999. Australia, 54%, New Zealand, Korea, 105%, New Zealand 59%, Hungary, 127%, Austria 37%, Poland 56%.

When you take the rising prices due to higher wages and a falling dollar, you wipe out any wage increases we have and are actually losing buying power.

The question we have to ask is why are we losing buying power even with rising wages? What is causing nations to shun the dollar? What do they see that "scares" them about the dollar? The dollar is based on nothing but demand for value.

Here is a good article on the dollar and why we have been in trouble, really, since FDR.
quote:
The 1944 Bretton Woods system maintained gold’s central role in the international monetary mechanism, but carried forward the flaw built into the Roosevelt mechanism -- which prohibited ordinary citizens from converting dollars into gold at the Treasury. The reason FDR did this was to prevent citizens from taking the surplus liquidity the Fed was trying to inject into the economy, by buying bonds, and coming to the Treasury to buy gold. The government wanted the public to spend the surplus liquidity instead of saving it in bonds or gold. All that was accomplished was that the public sold their gold to the Treasury for $35 an ounce and bought other bonds. The Depression actually deepened in 1937-38 as a result of the FDR tax increases.

The breakdown of the Bretton Woods gold standard was the result of several intellectual strands of thought running through American politics in the 1960s and 1970s, thoughts inconsistent with a gold standard. Because of the Crash of ’29 and the Depression, the demand-side economic theoreticians came forward -- Keynesians and monetarists -- with policy prescriptions that required manipulation of the monetary unit. Still and all, if Americans could have turned the surplus liquidity that resulted from these manipulations into gold at the Treasury department, the Keynesians and monetarists would have been foiled at the start, and it would have been impossible for the dollar gold price to rise from $35 in 1967 to as high as $850 in early 1980, and swing to and fro ever since. This is what Alexander Hamilton told Congress in 1791 -- that with a gold guarantee, government could not steal resources from the people by printing more money, because an extra dollar would immediately come back to the bank, either demanding gold or a bond paying an appropriate interest rate to compensate for risk. With a dollar as good as gold, the government would be forced to raise taxes if it wanted to get out of a problem it had either created or fallen into.
http://www.polyconomics.com/searchbase/fles13.html
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Many economists now believe the dollar has a good chance of collapsing and causing us to experience a long and deep recession. If the fed raises rates to shore up demand for the dollar, it will drive the economy down but if they don't, or cut, they may cause the foreign nations that lend us money to stop lending and even sell off the dollar causing its collapse.

The Fed has to try and straddle a knife edge because our government refuses to reform entitlements that cause so much spending. Almost 2 trillion of the 2008 budget is Social Security, Health and Human services (including food programs) and interest on debt in the treasury department (up $30 billion to $470 billion).

I think we will have the "bust" and then American voters will wake up and reform our government and in about a decade to 15 years, we will emerge stronger. If not, we will become another France.

That final collapse may not be at hand. We may have a mild recession and recover or no recession now. It could be now, next year, five years, or a decade before it happens but without reform of entitlements, it will happen. We can't keep funding them with borrowed money and raising taxes will cripple the economy.