Following the news over the last few weeks the US regulators are determined to bypass the big R. Reducing interest rates by 1.25% in few months (the usual drop or increase is 0.25%) guarantees quick devaluation of the US dollar against major currencies. Which in turn mandates a new reality being more expensive imported products into the US market. The quick moves means the US regulators are using the fast and dynamic decision making process versus the slow bureaucratic counter measure that, say, similar moves will require by the EU legislators.

While the European, Chinese and Asian economies are relying on exports to the US market, the US producers focus mainly on the local markets. Which in turn means not only bypassing the recession from its roots, but also 'outsourcing'the recession to Europe, China and Asia in general. American tourists will travel internally now that every major city will be too expensive. Oil prices become irrelevant in this formula since oil exploitation mainly consists of American oil companies sharing 80% of the produced revenue while the local country holds around 20% revenue share.

its always interesting to watch smart people at work.
The question is, where does that leave our Aussie dollar in the mid and long term? What will happen post the commodities boom?

The above analysis is complete nonsense.

Similar moves (cutting interest rates in the EU) do not require any action from EU legislators. In the EU they happen the same way they do in the US, through the EU's equivalent of the Fed Reserve.

The reason the US dollar is falling is not simply due to the interest rate cuts. The dollar is falling because investors are finally recognising that the US is a bad place to park their money because, sometime over the next 20 years its currency has to decline substantially.

Basically the outlook for the US economy is bleak. Government debt is massive. The military-industrial complex will not let congress stop wasting money on military purchases. The economy is destined for ruin over the longer term. The same thing collapsed the former Soviet Union. Too much expenditure of GDP on military toys.

The additional factor is that the US is losing the substantial subsidization they received as the world's reserve currency.

Even if the EU cuts its interest rates substantially, it currency will continue to appreciate because the Euro is replacing the US dollar as the world's reserve currency. Almost like the way the US dollar replaced the pound sterling. But only almost. When that change happened the change was slowed down, and took many years, because of the gold standard. This time, no gold standard and the change may become quite rapid. The US dollar may very well collapse.

Hi More Sanity,

Hope you had a good weekend.
First it's only a theory not an analysis.

Second, your post confirms the events in my theory with the difference being is the US benefiting / planning (my view) or it had to happen due to external factors (your view).

Third and last, I heard the theory of the Euro to substitute the US dollar as a reserve currency. However, this can't happen until an alternative to the US market is created.