The Hindu Business Line : Will $ be revalued?

The cut in the interest rates by the US Fed have been so sharp in the last few months that there can be no further cut. Despite the measures to prop up the US economy, signals are not encouraging.

In the third quarter, US home prices declined 16.6 per cent. More importantly, US consumer price index declined 1.71 per cent in November, the worst since 1932.

During the great depression, the then US President, Mr Frank D. Roosevelt, chose to do a few things to help his country recover. One of the measures he resorted to was to confiscate gold from all the Americans. Then, the dollar was devalued to 35 for an ounce of gold from 20.66.

Confiscation unlikely

Analysts view a likelihood of devaluation of the dollar in similar way by Mr Obama, though confiscation of gold is unlikely.

In an earlier instance, gold convertibility was suspended in 1857 during the US civil war. But what happened was that gold’s value in the black market vaulted above the official price.

There is also another instance in the recent past when gold gained. In 1990, Japan came up with a fiscal stimulus to help its economy recover. As a result, gold gained by nearly one-and-a-half times.

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