"I know
this is as welcome in many circles as a flashbang tossed on the table in a
swank dinner party, but the U.S. dollar is going a lot higher over the next few
years. For a variety of reasons, many observers expect the dollar to decline
against other currencies and gold, the one apples-to-apples measure of a
currency's international purchasing power.
The tailwinds
pushing the dollar higher are less intuitively appealing than the reasons given
for its coming decline:
1. The
Federal Reserve printing another trillion dollars (expanding its balance sheet)
will devalue the dollar because money supply is expanding faster than the real
economy.
2. The Fed is
printing money with the intent of devaluing the dollar to make U.S. exports
more competitive globally and thereby boost the domestic economy.
Let's examine each point.(...)
As for point 2:
2A. Exports are 13% of the
economy. A stronger dollar would reduce the cost of oil, helping 100% of the
economy, including exporters. Why would the Fed damage the entire economy to
boost exports from 13% to 14% of the domestic economy? It makes no sense.
2B. Most U.S. exports are
either must-have's (soybeans, grain, etc.) that buyers will buy at any price
because they need to feed their people (and recall that agricultural
commodities often fluctuate in a wide price band due to supply-demand issues,
so if they rise 50% due to a rising dollar, it's no different than price
increases due to droughts) or they are products that are counted as exports but
largely made with non-U.S. parts.
How much of the iPad is
actually made in the U.S.? Basically zero. Is it counted as an export? Yes. How
much of a Boeing 787 airliner is actually manufactured in the U.S.? Perhaps a
third. Sorting out what is actually made in the U.S. within complex corporate
supply chains is not easy, and the results are often misleading."
