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U.S. was not concerned about the dollar

Recently I have noticed that the U.S. was not concerned about the dollar. If you look at the fiscal and monetary policy, it is indeed a remarkable degree of consistency. Both reflect a clear conditions for a strong currency can be ignored.

This may seem ridiculous, given the impressive performance of the dollar too late. It is estimated at nearly all major world currencies, and more on a trade weighted basis. Note that this increase only from the crisis (allegedly) in Europe. He speaks not speak of a certain strength of the dollar, but weakness in other currencies. In fact, as I said in this week (“U.S. Dollar wrote Paradigm Shift”), because investors look at fundamentals, the dollar has suffered.

Without drilling through the nuts and bolts of American fiscal policy, said the U.S. budget deficit is $ 1,000,000,000,000 unthinkable for the second consecutive year at the border. The national debt is much faster than GDP growth and maintenance expensive for a growing share of the budget. To have stagnated double-dip recession looming tax now, no matter what happens to spend. In short, is the deficit of the United states a reality for the foreseeable future.

Monetary policy is equally devastating. The Fed has engaged in to maintain low interest rates and economic recovery. $ 2,000,000,000,000 newly invented money flowing into the system, and it is unclear when they run out. There are inflation hawks on the Board of Governors of the Fed, but they have no power, a change in the short-term effects of monetary policy.

The Bank for International Settlements (BIS), G20, and a pair of economists, including alarm calls were, that such a stupid policy, and inexcusable. According to the BIS, “the interest rate increases has a very low cash costs over time. Experience shows that the exceptionally low risk rating greater financial commitment, to delay the efficiency and induce a cloud of balance adjustments.”

In short, there is a clear consensus that a number of years of budget deficits and low prices, persistent, and at worst catastrophic. From the perspective of the foreign exchange markets, the interest rates in the short term, and what is important for the inflation rate in the long term. The dollar is at a disadvantage on both fronts. Interest rates are currently rising close to 0% – the lowest in the world – and lose monetary policy and high public debt, the probability of inflation in the wrong perspective.

Given this performance, the only logical conclusion that the dollar is simply no role in formulating the decision of the government and the central bank, the decision is. Since the start of the credit crisis, it was a luxury that could be awarded as a haven investment paid in the United States. If / when varying the disappearance of the crisis, that capital can, as investors are forced to look at the base.

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