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ECONOMIC ANALYSIS:

Thinking About Shakiness

by Fred Cederholm

While the media may have focused on the anomalies of a cluster of hundreds of unexplained quakes off the coast of Oregon and the Friday morning 5.2 shaker in Southeastern Illinois, the real “shakiness stories” should have chronicled the further downward slide of the US Dollar relative to the other major world currencies.
I’ve been thinking about shakiness. Actually I’ve been thinking about earthquakes, the US dollar, the February 2008 trade numbers, our trade deficits, our energy deficits, interest rates/the “auction,” and inflation. Official numbers for our energy imports and our trade deficit(s) for this past February, and the cumulative trade deficit(s) for the calendar year thus far were released last week. While the media may have focused on the anomalies of a growing cluster of hundreds of unexplained quakes in the Pacific Ocean off the State of Oregon and the Friday morning 5.2 shaker in Southeastern Illinois, the real “shakiness stories” should have chronicled the further downward slide of the US Dollar relative to the other major world currencies. Unfortunately there is presently no “Richter Scale” for the precarious shakiness of the Buck. The Dollar is having major seizures!

You see while equity markets appeared to enjoy a favorable performance for the week just ended, this is a fluke reflecting that certain “index heavy” companies had a better first quarter from their international operations - mainly because the Dollar continued to tank. Because we import far in excess of what we export, we all have paid dearly for the benefits of these few. We now see the repercussions of recent interest rate cuts and the continued printing of more dollars. There is a time value to money and that is called interest. Each cut or anticipated cut in interest rates paid to holders of Dollars results in a downward re-pricing in the purchasing value of the Buck. This is the true cause of the run amok inflation we are ALL experiencing at BOTH the gas pump and grocery store.

Our eight largest trade deficits for the month of February 2008 (and 2008 Year to Date) are as follows: China $18.355 Billion ($38.667 Billion YTD), Japan $6.877 Billion ($13.469 Billion YTD), Canada $6.450 Billion, ($12.316 Billion YTD), Mexico $5.467 Billion ($10.638 Billion YTD), Saudi Arabia $3.501 Billion ($6.891 Billion YTD), Germany $3.416 Billion ($6.320 Billion YTD), Nigeria $2.884 Billion ($6.297 Billion YTD), and Venezuela $2.600 Billion ($6.020 Billion YTD). Our hands-down overall biggest dollar denominated imports are for crude oil and petroleum distillates, so just WHAT all are we still hocking our souls for in what we are getting from China, Japan, and Germany? February imports AND exports were both at records, yet imports grew faster!

The top eight sources of Uncle $ugar’s crude oil imports for February 2008 were: Canada (1.888 Million barrels per DAY--MBPD), Saudi Arabia (1.614 MBPD), Mexico (1.231 MBPD), Nigeria (0.982 MBPD), Venezuela (0.927 MBPD), Iraq (0.780 MBPD), Angola (0.341 MBPD and Kuwait (0.261 MBPD). Uncle $ugar’s top eight sources of total petroleum imports for February 2008 were: Canada (2.419 MILLION barrels per DAY--MBPD), Saudi Arabia (1.627 MBPD), Mexico (1.324 MBPD), Venezuela (1.112 MBPD), Nigeria (1.025 MBPD), Iraq (0.780 MBPD) Russia (0.451 MBPD), and the Virgin Islands (0.351 MBPD). Crude imports averaged 9.514 MBPD at a February import average price per barrel of crude oil ($84.76). It is important to note that last Friday’s crude pricing reflected an all-time high of $ 117 per barrel. Pump prices locally are now $3.57/ gallon for a 10% ethanol blend, $3.67/ gallon for regular, and $4.18/ gallon for diesel!

The FED has cut their lending rate to banks by 3.0% to 2.25% to “save the banks and their borrowers,” but it is the savers who really took the hit on their deposits. Borrowers actually saw their rates rise, or MAYBE stay the same! Last week’s Treasury auction composite average rate at 1.38% for 26 weeks “suggests” further rate cutting by the FED. Should this major error in policy occur, the Dollar will plummet, and crude will soar above $130. A few may benefit; but... we will ALL pay at the pump AND the store!

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Copyright 2008 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.

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This story was published on April 21, 2008.