The war's over, oil prices are dropping, and there a break in the drought that plagued western North America for four years. Let the good times roll.
So what's happening to the U.S. dollar?
For decades, central banks around the globe, (usually led by the U.S.) have raised or lowered prime-interest rates to control inflation. Most of us grew up with the assumption that prices keep rising with wages not far behind.
When either of these gets too far out of whack, that's called inflation. But, in the past few weeks, deflation has suddenly become the big concern.
Over the past year, producer prices have been falling and then, in turn, consumer prices started dropping. In Asia wages have actually fallen. Though none of these looks anything like the massive deflation of the Great Depression.
And when U.S. central bank chairman Alan Greenspan last week postponed an interest-rate cut, market analysts, market players, and a lot of media gurus were running around waiting for deflation to hit them on the head. But it didn't happen.
On the weekend, economists and business professors were saying that while the threat of deflation had been "overplayed," the outlook for the US economy remained bleak. Consumer demand is down and there is a massive bill to pay for the war in Iraq.
What does all this mean to The Bahamas, which has pegged its dollar and its economy to that of the U.S.? Well, if there are no surprises, the best we can hope for in the short term is that all the soothsayers are overly pessimistic and that the American economy gets up from its sickbed sooner than expected.
There are analysts who say that without the artificial crutch provided by the U.S., the Bahamian dollar might be worth 10 U.S. cents. They may be exaggerating, but do we want to find out?
Editorial, The Nassau Guardian
