Re: Value of the dollar

[David Farber <dave () farber net>]

Begin forwarded message:

From: Joshua Tinnin <krinklyfig () gmail com>
Date: October 6, 2008 3:50:47 PM EDT
To: David Farber <dave () farber net>
Cc: geoff () cs hmc edu
Subject: Re: [IP] Value of the dollar
Reply-To: krinklyfig () gmail com

On Sun, Oct 05, 2008 at 10:37:06PM -0400, David Farber wrote:
> Begin forwarded message:
>
> From: Geoff Kuenning <geoff () cs hmc edu>
> Date: October 5, 2008 9:33:18 PM EDT
> To: dave () farber net
> Subject: Value of the dollar
>
> I've been watching foreign exchange rates during the current crisis,
> and I'm confused because the dollar keeps getting stronger.  Can
> somebody explain this to me?  I'd think that investors would be
> running away from dollars, not into them.
>
> I'm not an economist.  What's going on here?

See Google for "deflationary spiral."

Here's what Wiki says, which is the cut-to-the-chase version:

http://en.wikipedia.org/wiki/Deflationary_spiral

In economics, a deflationary spiral is a situation where decreases in
price lead to lower production, which in turn leads to lower wages and
demand, which leads to further decreases in price. Since reductions in
general price level are called deflation, a deflationary spiral is when
reductions in price lead to a vicious circle, where a problem
exacerbates its own cause. The Great Depression was regarded as a
deflationary spiral.

- jt




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