Demise of the Dollar?


Source: Trading View

 

 

To hear an audio spoken word version of this post, click here.

 

 

What do you get of you cross Q-Anon members with Crypto zealots? 

I don’t know, but I suspect they look a lot like the dollar bears. 

 

Its one of the more annoying claims we see among the Fed-bashers, hyper-inflationists, bond bears and gold bulls: The irreversible death of the U.S. dollar . . . Its coming imminently, just you wait and see.

Unless you look at a chart. Then, not so much.

The DXY basket is “a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.’s most significant trading partners.” It is in the middle of its range over the last 30-40 years. Its far above where we were during the Great Financial Crisis (GFC), but below far below where we were during the dot-com bubble days.

Whenever someone starts talking about the dollar, your go to move should be to view the data. The chart shows that the dollar is a pretty reasonable currency to use to engage in trade (much better than barter). That chart? It hardly looks like a dead or dying currency.

Other similarly silly or misleading claims I have read:

• “The Federal Reserve inflated their way out of a crisis” — except that inflation is not visible on the costs of goods and services since then.  In fact, Deflation has the dominant driver post GFC. When we discuss central banks “inflating the way out of a crisis” the reference is usually to a process of driving inflation higher to reduce the real costs of paying off debts. Show me the inflation…

• “The dollar is worth 99% less than it was 100 years ago.”  Why would you hold dollars for a century instead of dollar denominated assets like stocks or real estate?  I view this question as a great reveal of a financial simpleton.

• “QE inflated the economy.” Again, if you are going to make that claim, than you must show me the inflation somewhere besides your claims. And if you could tie it into QE, that might be helpful…

• “The cryptos are a bubble due to the US dollar debasement”  If by debasement do you actually mean the dollar is is maintaining its value relative to other currencies? Actual debasement should see dollar strength fall relative to other currencies — I don’t see that happening currently on any chart.

Crypto strength is proof the dollar is doomed…”  A variation of the above argument. I find Cryptos to be interesting assets — but at a trillion or 2 dollars, they look more like a very large company (AMZN, AAPL) than an independent and uncorrelated asset class.

If you are worth 100s of millions or billions of those worthless US dollars, why wouldn’t you hedge that wealth with a new and disruptive technology? The ultra wealthy may be getting advice to move 50 to 200 bps of their liquid net worth into crypto (at least that’s how I hear it being sold).

It is worth pointing out that versus the dollar these assets are too volatile to be a store of value, and generate a tax filing (1099-b) when used for a transaction, making them unattractive as a functional currency.

But as a hedge — sure, WTF not?

I am not suggesting the opinions on any of this are monolithic — not everyone agrees, and it takes two sides to make a trade — for the Dollar or stocks or Bitcoin. And there are many fascinating potential use cases for blockchain which we will continue to learn about; my favorite so far involve musical artists authorizing the resale of concert tickets — and capturing a cut of the upsell — thus cutting out the middlemen. (More on this in the near future).

All of the above makes for an interesting discussion. But I have been hearing the “debasement of the dollar” claim for decades now. Please let me know when it finally shows up in the actual value of the dollar.

“Exorbitant Privilege” indeed.

 

 

Previously:
Stop Stressing About Inflation (February 11, 2021)

Return of the Inflationistas (May 14, 2020)

An Open Letter to Bernanke of Dubious Authorship (November 15, 2010)

Inflation

 

 

 

 

Print Friendly, PDF & Email

Read this next.

Posted Under