Monday, January 15, 2018

Since Trump, US dollar is getting killed.

Trump may be reveling in the stock market's gains since his election victory, but the dollar is going in the other direction. It is getting killed.

When Trump was elected the Dollar Index was at 98. Now it's at 90. Dollar/yen was at 118, now it's at 110. Euro/dollar was at 1.04, now it's at 1.23. British pound was at 1.23, now it's at 1.37. Canadian dollar was at 1.36, now it's at 1.24.

Trump has been a disaster for the dollar.

What's more, the dollar's fall is still in its early stages. With his monkey idiot Treasury Secretary, Steve Mnuchin, and the endless sanctions on everybody--the literal weaponization of the US dollar--these fools have set in motion a powerful trend of global "de-dollarization."

It is becoming plainly obvious to countries and institutions around the world that the risk of being shut out of the global, dollar-based transaction and clearing system is too great so alternatives are being sought. This is one explanation for the rise of Bitcoin and other cryptocurrenices. You can also see it in newly emerging bilateral agreements between nations, such as China and Russia, where transactions and trade are being conducted in ruble and yuan.

Add to this the fiscal stimulus of the tax cuts (money printing) and the Fed's rate hikes which they stupidly believe squash inflation. (5 rate hikes since Dec 2015 and inflation up, dollar down, gold up, oil up.)

It's over for the dollar. Trump and Mnuchin...the tag team that will destroy the dollar.

Get short, everybody. Get short.


Andrew Anderson said...

One way to greatly increase demand for the US dollar would be to allow US citizens to actually use THEIR NATION'S FIAT in convenient, risk-free form via demand accounts at the Fed, just like the banks have, and to eliminate all other privileges for the banks too.

So the destruction of the dollar for international use may be a blessing in disguise as far as fiat and credit reform goes.

The destruction of the dollar for international use should also be good for the US trade balance. Is this Trump's plan to increase US jobs? By destroying the ability of Americans to buy foreign goods?

Noah Way said...

So a strong dollar = a weak stock market?

SDB said...

A weaker dollar should elicit an "improvement" in the current account,
Stronger foreign currencies relative to the dollar give them more purchasing power in terms of dollars, a boost for US exports,
Combine a decreased trade deficit + tax cuts/deficit spending at home,
Outlook for economic growth looks good!

Tom Hickey said...

These are "rules of thumb."

They are altered by circumstances since many factors are involved in fx rates.

If there were a hard rule, fx trading would be a snap.

Deterministic functions usually apply only to special cases. Deciding which special case applies in a situation is not a given. Dani Rodrik calls it a craft.

Even in classical physics there are a lot of attendant circumstances that need to be taken into account, such as friction. In economics, friction is analogized as market inefficiency resulting from "market imperfections."

While physics is generally able to accommodate attendant circumstances with precision if measurement permits, it's more complicated and may even be complex in other disciplines, like econ and finance.

In trading one needs to know the real situation, such as MMT gives in some areas, and also anticipate what most market participants will do, which usually involves misunderstanding the real situation.

So rules of thumb need to be taken with a grain of salt. There's a lot of craft involved in applying them usefully.

For example, the rule of thumb called the law of supply and demand is that lower prices increase demand. That is only true if in fact there is notional demand for the product and also the the effective ability to pay the price. In other words, elasticity is assumed. It may not be the case in all circumstances. Veblen goods (conspicuous consumption) contradict the law.

Economists deal with this by assuming ceteris paribus (all things being equal). But all things are seldom equal in the real world. So while economic rules can yield some result in general (probabilities) the are not so good at making predications in specific cases.

Doesn't that failure of a prediction to corroborate the hypothesis disconfirm the theory from which the hypothesis is derived as a theorem? Economists say no, because cet. par. In other words, the theory cannot be disconfirmed by contradictory evidence.