Interesting post here about dollar devaluation in a blog discussion.

Unlike Cavuto on FOX, the blogger thinks the dollar won’t bounce in the near term.

“I am not so sure about the overvaluation of the dollar.
I live in Denmark, and our valuta the DKR is pegged to the Euro.

I made a little survey for about 6 weeks comparing supermarket prices in Denmark and in the USA.
If you remove sales taxes and VAT, the real value of the dollar in a supermarket is about 56-60 eurocents. Today the exchange rate is about 68 eurocents to a dollar.

If you look at IKEA which is both in Europe and the USA and make the same comparation, IKEA values 1 dollar to 52 eurocents.

I think the dollar is going through a “controlled” gliding devaluation, and I think the goal is 1 dollar to 60 eurocents.

The FED and the ECB has a common interest in the project.

The FED can in that way get rid of a good deal of the American foreign debt, and the ECB can help the Euro to be a new international reserve valuta. At the same time, the EU has only a small part of the dollar reserves, so their losses will be relatively small.

The real losers will be the countries in the far east, that have invested heavily in dollars.

That’s why the ECB keeps up the rates, while the FED lowers their rates.

By the way, the USA is not the largest economy in the world.

In 2006 the US GDP was 13.000 billion USD, and the GDP in the EU15(the “old” EU) 11.400 billion €.
With todays exchange rate that is 16.764 billion USD, or about 29% larger than the US GDP. Maybe that’s the reason for the shift in reserve valuta.

With a foreign debt of 60% of GDP a large internal public and private debt and a negative private saving rate (-2% in 2006) the US economy is in a relatively bad shape, and on top of that is the sub-prime crisis.

So it is not likely, that the USD will revaluate in the short run.”