The Dollar: Poised for a Comeback

An election victory for Barack Obama above all would help strengthen the U.S. currency. His infectious optimism would encourage Americans to start spending again.

Whoever wants a bargain vacation in the United States had better not wait too long. There are good reasons to believe the days of a sinking dollar are finally coming to an end. When Europe adopted a single currency as of January first, 2002, tourists to the United States got barely $0.90 for their Euro. Today, they get nearly double that.

Current predictions concerning the coming U.S. election indicate that the next President will probably be named Barack Obama. The American economy and the dollar would profit from that because his Kennedy-like infectious optimism would encourage anxious Americans to start spending again.

Above all, Obama would end America’s involvement in Iraq much more quickly than would his Republican opponent, John McCain. The cost of this failed project currently runs about two billion dollars per week. The annual price tag to the American taxpayer, therefore, stands at about 100 billion dollars. With that money, America’s burgeoning budget deficit, currently projected to be 250 billion dollars, could be cut in half. Obama would remove a heavy burden from the dollar’s shoulders.

Favorable entry into the U.S. market

At the same time, Arab investors would immediately begin investing significantly in the United States once again. Deterred by the Bush administration’s Middle East policies, they turned their backs on the United States in past years. They preferred to exchange their petrodollars for Euros and invest them in ”old Europe.”

Additionally, the oil-exporting countries have invested their profits substantially in their own countries. The skylines of Middle Eastern cities have become a concrete image of this development. The United States, however, is focused on capital inflows from the Middle East because they are unable to dig themselves out of the continuing real estate and financial crisis. Prospects that U.S. banks will continue to require emergency capital and the enormous need for credit packages will offer Arab investors attractive access possibilities in the U.S. market. There remains only one thing needed for this to happen: the political tailwind of regime change.

No Unified Economic Policy in Europe

The stock market would also welcome an Obama victory. At any rate, that’s what history teaches us. Over the last 80 years, U.S. stocks did well after an election where the Democratic candidate replaced a Republican incumbent. A rising stock market would also help attract foreign investors who exchange their currencies for dollars in order to invest on Wall Street. At the same time, American consumers would see a rise in their personal wealth. Experience has shown that that, in turn, would be accompanied by a rise in consumption.

Finally, it must be recognized that we’re dealing principally with a weak dollar, not a strong Euro. The controversy over a common European constitution indicates that there will also be no consensus on a common European economic policy. Beyond that, it’s apparent that accession of east European countries into the EU during the coming year will mean there will be more countries unable to meet the Maastricht criteria over the long term. These weaknesses in the European economy will mean a long-term burden for the Euro. In the end, actual purchasing power parity now tends toward the dollar and away from the Euro.

The Greenback’s Comeback

An Obama victory on November 4th of this year will mark the latest point at which to start investing in the dollar again. That is when the greenback will change from being risky to being a good investment. Above all, selected stocks and real estate investments will profit from the dollar’s comeback.

The dollar used to bear the statement that it was “redeemable in gold.” In its place today we read “In God we trust.” Currently, along with trust in God, the political and economic indicators point toward a stronger dollar.