http://www.lewrockwell.com/paul/paul303.html

The author (Ron Paul) is a US congressman (TX-R) and believes in the gold backing of US dollars. This article suggests the the Dollar is based on "oil-standard" or Petro-Dollar. He argues that if that "oil-standard" is taken away then USD would fall.

However, some of his deductions are controversial although somewhat logical. Does USD need a base in oil or is it simply an artificial commodity? If it does have a base in oil then not only does this makes sense but also the fact that the environmental movement and any move away from oil based energy is also doomed to fail...

2/19/2006 8:59:37 AM

I am not sure were to begin.

Fundamentally, the dollars power as a currency derives from the fact that the United States government demands taxes be paid in dollars, spends dollars when it purchases and issues dollar demoninated debt. Since the US government represents 1/6th of the United States economy it is pretty much forgone that the US will use dollars.

Other than that the value of the dollar is determined by supply and demand. The Federal Reserve determines supply, which is what makes them so powerful.

They manipulate the supply to control the value of the dollar. When it seems that the value of the dollar is falling (inlfation) they pull back on supply.

As for why the dollar is so strong relative to other currencies, this is largely a mystery. However, a falling dollar would probably be a good thing for the United States.

When other countires have currency crisis its bad because they usually owe dollars. If their currency falls relative to the dollar it means they owe more money. We owe dollars as well but the dollar is our currency.

If the dolalr falls, so what? The main people who take it in the teeth are the central banks of Japan and China who are holding a bunch of dollars.

However, a falling dollar makes imports more expensive, which is probably a good thing because American's blow too much money on cheap imports.

2/19/2006 9:30:11 AM

^ What he said. If the dollar is on the "oil-standard" then why does the price of oil, in dollars, change so much? Back on the gold-standard, how much fluxuation do you remember?

2/19/2006 10:48:07 AM

^^Yeah, that's an interesting take on it. So, theoretically, if we assume a gradual rather than sudden slide of the dollar, the main effect may be to make the American economy more competitive, especially in the domestic manufacturing sector.

^ I don't remember any fluctuation on the gold standard, since that was eliminated long before you or I were born. But I did read about the stagflation of that time period

2/19/2006 10:50:10 AM

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B5A381134%2D1AE9%2D4C91%2D9341%2DE549A1F0E320%7D&siteid=mktw&dist=

2/19/2006 12:32:47 PM

2/19/2006 12:44:41 PM

The strength of the dollar depends on the strength of the US economy.

2/19/2006 4:09:07 PM