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How the Recession will Affect the Dollar

Jack Crooks takes a closer look at predicted outcomes for the U.S. recession. Mr. Crooks discusses what he believes could happen to employment and the dollar.

As the U.S. economy continues to have a fragmented real estate market, a sticky lending environment, soaring food and energy prices and substantial job losses, consumers seek answers that may forecast the end. Consumers are wondering whether the economy will recover and when. Economists are always voicing their predictions. There are those who believe the recession will be rather shallow, but could last for a couple quarters. Richard Fisher, Dallas Federal Reserve President, mirrored those thoughts in commentary he made on May 15. He cited the excesses due to credit market mayhem as the reason for a long and drawn out recessionary period. In addition, the U.S. Current Account Deficit also has done a good job of forecasting the last two recessions and may be doing it again. It points to two things:

1. U.S. consumers are buying less and saving more.

2.    Dollar liquidity is falling from around the globe, which is bad for business everywhere and adds to the recession potential.

Of course, opinions vary as to the question of just how hard this recession will hit. Crooks believes the recession is in its beginning stages. Some of the latest predictions expect unemployment to rise considerably, averaging roughly 5.6% over the next two years. This unemployment figure may not be so bad on a historical basis, but it won't be easy for U.S. consumers to defend themselves against the recession if they can't secure a steady income.

And even if the numbers don't fall any lower and the economy undergoes only a mild recession, there's a chance it could actually still feel a lot worse than that. Crooks pulled some statistics from the 2006 Bureau of Labor Statistics Consumer Expenditure Survey that might help explain things:

-    Households earning less than $70,000 per year made up nearly 70% of all U.S. households included in the survey.

-    Expenditures among those households earning less than $70,000 per year amounted to $2.77 billion, or less than half of total household expenditures.

-    Spending on food, gasoline and housing made up 54.7% of total expenditures among households earning less than $70,000 per year versus an average of only 48% of total expenditures among households making more than $70,000 per year.

In other words, a smaller group of wealthy people account for a disproportionately large piece of total consumption. Additionally, the larger group of less wealthy people put up a larger percentage of their total expenditures towards necessities such as eating, driving and dwelling. This means:

First, since food and energy prices are on the rise, the majority of the population is bound to feel worse when their discretionary income goes in one end and out the other faster than before.

Second, households earning more than $70,000 per year will still have sufficient discretionary income to keep the economy above water.

"So what's it all mean for the U.S. dollar Markets tell us what we can expect, or at least what other traders and investors expect. The dollar has stabilized since hitting an all-time low on March 17. And a shift in expectations for the U.S. economy might offer some support for the low-lying dollar," Crooks states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspxNewsletterEntryId=1789

About JACK CROOKS & MONEY AND MARKETS     

John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.

Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.

Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.

Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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