Yesterday was a holiday in America – Labor Day. In global markets the dollar went nowhere and oil went up. Oil is above $70 again...its most recent rise attributed to hurricane winds blowing towards the Gulf of Mexico.

The risk of recession is increasing, according to a Bloomberg report. Both business and personal spending are being curtailed by tightness in the credit channel. At the top end, some half a trillion dollars worth of deals are said to be stuck...unable to get financing. At the bottom, ordinary homeowners are facing up to ‘life without refinancing’. It’s not exactly that they are being forced to live within their means; instead, they are just discovering what their means are.

GDP in the United States is growing at a reasonable pace, but the growth is not showing up in paychecks. Our old friend, Scott Burns, reports that wages grew less than inflation during eight of the nine years between ’88 and ’96. Then, in the most recent 10 years, wages beat inflation in almost two of every three years. But the gain was so slight – just $10.61 per week for the whole period – that is was probably erased by rising health care premia. Incomes have been stagnant for at least a generation, says Scott.

Recession is inevitable. And with recession will come a lower dollar, say George and Helen Pardee, writing in the Financial Times.

“Now is the time to sell the dollar,” they say.

“One of the surest bets over the last 35 years was betting against the U.S. dollar,” wrote our old friend Gary Scott recently. Gary reminded us that he practically invented the carry trade; more than three decades ago, he began borrowing in one currency and putting the money on deposit in another, pocketing the difference. He called it the ‘multi-currency sandwich.’ He continues to do it today...using fairly low risk, long-term placements and working with a Danish bank. The way Gary does it, the ‘carry trade’ looks less like wild speculation and more like prudent money management.

Why would the dollar be an especially weak currency? “Because its issuer is especially strong,” is our answer. The dominant imperial power always has a financial advantage. In the modern world, it provides the reserve currency that is used for international trade and global banking. Oil is still (mostly) priced in dollars. So are gold and other key commodities. People use dollars like they use English, to get around in the world. Other nations have to support their own currencies. But the dollar gets much of its support from abroad. Foreigners use it to make billion-dollar multi-national LBOs...and to buy illegal drugs on the street corner.

Americans are also the biggest shoppers in the world...which gives every exporting economy on the planet an incentive to hold the dollar up against its own currency, lest a rival steal a march on it. There is a bias in favor of the dollar, in other words, that goes beyond its actual financial strength.

Our general rule here at The Daily Reckoning is that a man will always seek to hustle something for nothing – as long as he can get away with it. Having the world’s reserve currency permits the United States to get away with the grandest larceny in history. It has spread its paper all over the globe, and as the dollar goes down in value, the foreigners lose money. Too bad for them; they should have known better.

Charles de Gaulle, aided by his sharp economics advisor Jacques Reuff, did know better. Back in the ’60s he noted the ‘exorbitant privilege’ that the dollar enjoyed. He instructed his treasury officials to lug their dollars to Washington and ask for them to be redeemed in gold. This action by the French led to what looked to the Nixon Administration like a run on U.S. gold. On August 15, 1971, the Nixon government effectively reneged on nearly two centuries of good faith and promises, refusing to honor its paper. Henceforth, it told the world – you’re on your own; your dollars are worth only what you can get for them on the international market.

For a while, it looked as though Americans wouldn’t be able to get away with much more inflation. The world was on to the scam. The dollar was falling sharply. But then Paul Volcker came along and restored faith in the greenback. Soon the coast was clear again.

Still, the dollar slips and slides. You could buy a euro, soon after it first came out, for just 88 cents. Now, it will cost you $1.36. A gallon of gas...a bushel of wheat...a year at

Yale...everything is rising against the dollar.

“Our government just flips a switch, and out pops more money,” says Strategic Investment’s Dan Amoss. “This kind of behavior is detrimental to our future financial stability.

“Who cares if you have a million dollars tomorrow, if you have to spend $5 to buy what cost $1 today?”

How long will it continue? A lot longer is our guess. Most likely, the gentle slide of the dollar will be followed by a scarier decline. Before it is over, dollar holders will feel like passengers on a runaway bus...they’ll take the first opportunity to get off.

The dollar may be falling...but the price of wheat is soaring...

“Wheat has gone up like a rocket,” said a farmer in France. “We used to sell it for less than 100 euros a tonne. That was just a few months ago. Now, it’s selling for 260 euros a tonne.

“I think the whole world is changing. You know, agriculture has suffered for many, many years. Who wants to be a farmer anymore? You have to work hard...and you have to risk your money...and sometimes you don’t even earn enough to live on. And here in France, maybe it is the same in the United States, I don’t know, you also have to put up with so much paperwork...environmental protections...employment rules. I work in the field all week. Then, on the weekend, I have to work in my office to keep up with the paperwork.

“But maybe our time is coming at last. Now, the Chinese need food. And they don’t have that much good land to grow it on. They have to get it from us. And everyone wants quality food. And you can’t just produce quality food overnight. It takes many years of careful preparation ...especially if you’re raising animals.

“And they’re taking a lot of land out of food production in order to use it to produce fuel. It is probably crazy, because it is a negative-sum operation in terms of energy, but it is a fact. I take two things as given – that the price of fuel will continue to go up...and the price of food will go up.

“You know, in Argentina, they’re moving the cattle to more and more marginal land – in order to switch to growing cereals. Because they can make a lot more money a lot faster by growing grains. It’s easy to make the switch too. Then, when the price of cereals declines, they’ll want to switch back...but it’s hard to go in the other direction. You can add to the world’s grain supply pretty fast. But you can’t add to the world’s beef supply fast...at least not quality beef. It takes time to build up a herd...before you can begin selling in any quantity. That’s why I think I’m better off sticking with cows. They’re not as profitable as grains now, but as these Chinese people get more of a taste for meat...and the quality of Argentine beef goes down...they’re going to want our good French meat.”

We agree...people will always need to eat...and grains (and grain-fed animals) are more in demand than ever before in the Far East.

That’s why we tend to believe that this commodities boom is far from over – it may just be starting.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.