Don't Like a Weak Dollar? Might as Well Get Used to It

[The Northerner]

Weakness in the US dollar, which is causing everything to go up—including gas prices, food and stocks—is unlikely to go away soon as a selling frenzy hits the currency market.

The greenback is approaching pre-financial crisis lows and threatening to smash through its all-time low when measured against the world's predominant national currencies.

A combination of factors accounts for the weakness, with the Federal Reserve's easy-money policies, huge national debts and deficits and the consequential possibility of a debt downgrade because of the financial mess in Washington leading the way.

In short, as trader Dennis Gartman noted on Thursday, "the rout of the US dollar" is in full effect.

Read more: http://www.cnbc.com/id/42703813

[notesdev]

1. Don't get too used to it

If it keeps going as it is, it will be worth as much as a Weimar Deutschemark before you know it. Hope you got your wheelbarrows ready...

[MadHound]

2. Trouble is that employers won't match the weakening of the dollar with corresponding wage hikes

Instead, we'll be left to fend for ourselves, making $8.50/hr while bread will cost $100.00 a loaf.

[notesdev]

4. why future tense

let's call it like it is.

We've been left to fend for ourselves already.

[Abq_Sarah]

12. Well, with the weaker dollar

My customers can't handle the corresponding price hike.

I'm not the one who sets monetary policy and prints money.

[WhiteTara]

9. I do! And I'm building my garden as fast as possible

cause I don't want to buy bread that way!

[girl gone mad]

3. The Bush tax cuts and the Obama extension of these cuts..

should be at the top of the list of things contributing to a weak dollar.

Of course, CNBC would never tell the truth about that.

[notesdev]

5. eh?

Try zero percent interest rate policy, quantitative easing and bailouts.

The tax issue is marginal in the big picture.

What really is driving the situation is the $14 trillion handed out by Bernanke and Geithner to their friends/owners in the banking system.

A great deal of that became hot, speculation money. Drove stocks way higher than fundamentals justify, and caused a new bubble to form in commodities as well.

The math is pretty simple - if you greatly increase the supply of dollars in the economy without a similar increase in actual production, the value of the dollar will plummet. And that is exactly what you are seeing right now.

And the Fed, of course, is just monetizing the deficit, since we already appear to have run out of net buyers of Treasuries.

Get ready to live in a third-world America because it's coming at you at light speed.

[The Northerner]

6. +100

The more money that the Fed prints the more devalued the US dollar becomes.

This has already occurred before if one researches the history behind the phrase "not worth a continental".

Pretty soon it might as well be "not worth a US dollar".

[Exilednight]

7. If taxes were raised, then we wouldn't need to QE and interest rates would

have been offset by the shrinking of the deficit.

A lot of the dollars weakening comes from the ever increasing wealth gap. The current gaps weakens the public's trust in the dollar, and all currency is only as good as the belief that the currency actually holds some value.

[girl gone mad]

10. Quantitative easing had the net effect of an asset swap, nothing more.

It really didn't flood the system with money. Bonds have been replaced with dollar credits. When interest rates are at 0%, this is the asset swap equivalent of issuing treasury bills to replace whatever the Fed purchases. The Fed takes these assets out of circulation when it buys them, so while the monetary base expands, net financial assets do not expand.

Tax cuts for the wealthy, on the other hand, have resulted in more capital available for speculation, as has the growth in income for the wealthy which has resulted from decades of global labor arbitrage. Too much money at the top is now engaged in rent-seeking activity, fueling bubbles in commodities and equities.

This activity shouldn't be confused with broad inflation, which would require an expansion of credit and increase in the velocity of money.

Here's a look at M1, btw:



This is what debt deflation looks like. I think it's interesting that everyone screams 'inflation', but that's not what we've got. We have more dumb asset bubbles, fueled by financial speculation. Blame it on the bailouts and the Bush tax cuts. Rich people have more money than they know what to do with and they all want quick returns. The rest of the country is still screwed, with wages and housing declining while credit dries up.

[notesdev]

16. I would have to disagree there

the chart you posted is the money multiplier, not M1, and while it does indicate the lowest monetary velocity ever recorded, there's a flip side to that chart:

http://research.stlouisfed.org/fred2/series/BASE

That's the monetary base. Notice that it's going parabolic, rising a good deal faster than MULT has been falling. MULT has actually been in a pretty tight range while the HUGE spike in BASE has been going on.

Some simple math... since the shock (the vertical jumps on each graph) MULT has gone from ~1.6 to 0.76; dropped by a little more than half.

On the other side of the equation, the monetary base went from ~$850B to $2600B, or more than tripled.

Our monetary base therefore is rising at a rate 50% higher than MULT has fallen. And if you calculate by post-shock numbers (start after the shock jump rather than at the start of it) it is a good deal worse; MULT has only fallen by about 12% since then while BASE has jumped by over 60%. In other words, the situation is getting worse, not better. They are overpowering the drop in MULT by sheer volume of money printing.


edit: The chart at this link shows more detail on what is going on with BASE:

http://www.zerohedge.com/article/and-meantime-adjueted-monetary-base

[girl gone mad]

14. Here's another chart which makes the point.

courtesy of Doug Short:



The long decline in value of the dollar vs. gold corresponds well with the enactment of the Bush tax cuts (in 2001 & 2003), but not so well with QE1 (11/2008) or QE2 (11/2010). The spikes in the dollar in 2008 and 2010 are related to a flight to safety resulting from the PIIGS crises.

See how the value of the dollar rose in the mid-90s under Clinton? Interest rates were very low during those years, too. So what was different? Higher tax rates on the rich = less money available to invest in speculative assets, for one. The dollar also rose against most foreign currencies over that time period. The government taxes money out of existence, a tool which provides stability to fiat currency.

[notesdev]

20. More importantly what was different

was the repeal of Glass-Steagall, which coincides precisely with the top in the value of the dollar!

[xchrom]

8. Recommend

[Poboy]

11. recommend

[crickets]

13. K&R

[taught_me_patience]

15. Running 1.5T deficits is not free

there ARE consequences... and a weak dollar is one of them. The deficit and debt is a HUGE problem and deniers need to wake up.

[LetTimmySmoke]

17. Hey, if it devalues enough..

...then corporate conglomerates will shower America with the generosity of their investment by opening thousands of sweatshops right here!

[whoneedstickets]

18. Optimistically, it will make US exports cheaper abroad...

but it will lower the US standard of living since that was built around an artificially strong dollar and its global purchasing power.

[Initech]

19. We should just use the Euro and get it over with.

We're gonna be like Zimbabwe where they have to weigh their currency by the pound if this shit keeps up.