Reply #41: oil prices

[melm00se]

(and by extension gasoline pump prices) are being driven by a lot of what has been discussed above:

- speculation by oil traders
- demand coming out of China and India
- supply by OPEC

but the one thing that has been overlooked:

The weakening of the US dollar.

a nifty thing happens when a currency becomes less "valuable": imports into the country with the weak currency cost more and exports from that same country cost less in the countries where the exports land.

this is one of the ways that China has become such an exporting powerhouse: their currency is being artificially low thus making their exports cheaper than domestically produced goods. If China lets the yuan to freely float you would see a dramatic shift their economic mix - I have seen some speculation that the US/China trade (im)balance would be dramatically less almost overnight (that is, of course, assuming that the Chinese economy is as healthy as the Chinese are portraying (something I personally doubt but cannot prove).