RTHK Show Notes: soggy dollar repeating history


Thursday, August 03, 2017 // Written by Enzio von Pfeil
Despite America's  Treasuries yielding more than the Europeans' or Japanese', the dollar remains soggy.   But it has been since kickoff in the early 1970's!


THE STRUCTURALLY WEAK DOLLAR

  1. Always been weak. All reserve currencies falter, whether Sterling in its day, or the dollar since kick off in the early 1970s.  At that point, you had to pay YEN 400/dollar and Swiss Franc 4/dollar. Now those rates are roughly 100 yen and 1 Swiss Franc.
  2. More recent explanations for the softer dollar
    1. Trump’s rambunctious policies .  Kaiser Trump got elected this January, at which point the dollar index hit a 14-year high.   But during the last week of July, the dollar index fell back to levels last since in June 2016.   Whimsical policy developments have hurt the dollar: we all know how ineffectual antagonistic and rambunctious Kaiser Trump is, particularly when it comes to his non-dealings with Congress!

                                                   i.      His presidency is the sequel to The Apprentice – although I am not sure if his underlings – or he – is The Apprentice.

    1. Trump talks-down the dollar.  According to John Authers of the Financial Times (FT)  of 29th/30th July 2017, p. 16, “Three months ago (i.e. April/May, your author), Trump said Ï think our dollar is getting too strong…But that’s hurting, that will hurt ultimately.’ “
    2. Congressonal debt ceiling mudfest

                                                   i.     Health care debacle mirrors looming debt ceiling debacle.  According to the FT of 1st August 2017, p. 3: “Republican failures to achieve legislative victories – embodied by the collapse of healthcare reforms – last week injected an early bout of nerves into financial markets as investors confronted the possibility of a disorderly stand-off over the US’s public debt limit. In a worst-case scenario, this could lead to a government shutdown as well as market turmoil.”

    1. Quantitative easing.  We all know about the massive amounts of dollars that the Fed has  pumped into the system by getting bonds and thus giving dollars.  Any time you increase the supply of something, its price diminishes. Thus,

                                                   i.     According to our Economic Clock®, the Fed has been injecting massive amounts of dollars into the system

                                                 ii.     This has propelled US asset prices, but

                                               iii.     It also has depressed the USD exchange rate on account of its increased supply


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