The myth of a dollar pullback, and why DXY is still cheap
There are many competing theories which claim the dollar is crashing or going to crash in value. Ray Dalio, for example, has stated that this is the end of the American Empire and that all currencies fall at the end of the natural life of empires and now it's simply the USDs turn. Countless other pundits point out that the fed and the treasury are creating trillions of dollars out of thin air and that they have nowhere to go except into the pockets of the people, which will soon create mass inflation and TikTok videos of people carrying around $1000 bills in wheelbarrows to buy a loaf of bread.
This chart shows the folly of such thinking. The dollar is going up, and has been going up since the GFC, even during the coronavirus emergency.
Usually, the same people who cry "inflation" the loudest have an incentive to shock you into reading their newsletter (Dalio), or into buying into their gold and precious metals fund. The dollar is actually slightly undervalued today, but mathematically it's in line with the desired order (see chart). The goal of our economic planners is to keep a goods surplus in the USA (which requires a stronger dollar) while keeping the services industry strong (which requires lower absolute wages). For these twin reasons, the dollar itself has risen since the Global Financial Crisis. During this time, the US engineered its economy around this bedrock principle. In fact, the Fed lost some ability and willpower to devalue the dollar due to increasing worldwide commodity prices and a desire by China to decouple to renminbi from the Dollar, among other forces. It's likely that the US economic planners view the dollar as far too strong at the moment, and welcome reasons to print money and put zeros in peoples bank accounts.
From 2008 to present, the US has brought trillions of "excess" dollars into existence, with no sign of inflation for well over a decade and counting. If anything the bind policymakers are in is that they can't print enough dollars to weaken the currency to the desired level.
The current word on the street is that the world will enter a global recession and we will all be carrying wheelbarrows of cash to the grocery store. Don't be a chump. Don't believe the word on the street (at least not about the wheelbarrows full of devalued cash). The world can absorb many more dollars before any inflation begins. This is a better time to own USD.
This chart shows the folly of such thinking. The dollar is going up, and has been going up since the GFC, even during the coronavirus emergency.
Usually, the same people who cry "inflation" the loudest have an incentive to shock you into reading their newsletter (Dalio), or into buying into their gold and precious metals fund. The dollar is actually slightly undervalued today, but mathematically it's in line with the desired order (see chart). The goal of our economic planners is to keep a goods surplus in the USA (which requires a stronger dollar) while keeping the services industry strong (which requires lower absolute wages). For these twin reasons, the dollar itself has risen since the Global Financial Crisis. During this time, the US engineered its economy around this bedrock principle. In fact, the Fed lost some ability and willpower to devalue the dollar due to increasing worldwide commodity prices and a desire by China to decouple to renminbi from the Dollar, among other forces. It's likely that the US economic planners view the dollar as far too strong at the moment, and welcome reasons to print money and put zeros in peoples bank accounts.
From 2008 to present, the US has brought trillions of "excess" dollars into existence, with no sign of inflation for well over a decade and counting. If anything the bind policymakers are in is that they can't print enough dollars to weaken the currency to the desired level.
The current word on the street is that the world will enter a global recession and we will all be carrying wheelbarrows of cash to the grocery store. Don't be a chump. Don't believe the word on the street (at least not about the wheelbarrows full of devalued cash). The world can absorb many more dollars before any inflation begins. This is a better time to own USD.
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