Why the Dollar's Back

But that's not a closed system. It requires the U.S. oil consumer to come up with a steady supply of new dollars to feed into the dollar pipeline. Since the Federal Reserve started pumping up real estate prices to cushion the blow of the bursting of the stock market bubble in 2000, U.S. consumers have found those dollars by refinancing their mortgages or borrowing against the equity in their homes.

Home prices don't have to fall to reduce the flow of dollars from those sources: The regular flow of dollars from real estate to gas pump to the Treasury market has depended on a constant rise in real estate prices. There's evidence now that price increases are starting to slow in many of the most overheated markets. That will mean fewer dollars for the pipeline and at some point a reduction in demand for U.S. Treasuries.

I'm not looking for a collapse in the dollar in 2006, just a gradual reversal of the recent price gains in the currency and then a drift lower.