The “Strong Dollar” Myth

It should be pretty obvious by now that the U.S. Government, Fed and Wall Street are flooding the airwaves with nothing but fraudulent claims and lies.  One of the biggest ones currently is this idea that the U.S. dollar all of a sudden is strong and will continue to stay strong.  Part of this is seeded in the Fed’s constant threat to raise interest rates.  They’ve been threatening us with that for well over a year now.  But anyone with half a brain cell left in their skull knows that if the Fed raises interest rates, it will be like pulling the foundation out from under the Empire State Building.

The popular narrative coming from the idiots proliferating the airwaves of financial media tv holds that “the dollar is the least dirty shirt in the closet and that’s why investors are selling euros and yen and buying dollars.”   That’s utter bullshit.  When all the shirts in my closet are dirty, I don’t put the least dirty one on – I take them all to the cleaners.  Dollar-based investors are about to get taken to the cleaners.

Let’s take a look at long term chart of the dollar (click on it to enlarge):


This is a 6-year daily graph.  Now, I heard some idiot on Bloomberg News the other day say that this was the biggest move the dollar has made since, like, Christ was a child.  But how does this move look compared to the two moves the dollar made from late 2008 to mid-2010?   The USDX ran from 70 to 90 in 2008 in just 4 months.

You can see that since late 2009, the dollar has been trending in a sideways pattern between 74 and 86.   Can we really call this  a “strong” move?  The dollar index is made up of a basket of 6 western hemisphere U.S. puppet currencies.   Here’s the composition:  euro 57.6%, yen 13.6%, pound sterling 11.9%, Canadian dollar 9.1%, krona 4.2% and Swiss franc 3.6%.   Yes, the dollar has moved up to the top end of its 5-yr trading range vs. primarily the euro and the yen.  Big deal.

One thing on the graph above I’d like to point out is the red line in the bottom panel.  This is the “accumulation/distribution” metric.  It measures the cumulative flow of money in and out of a security.  As you can see, the degree of money flowing into the U.S. is not even close to the level that was flowing into it during the 2008-2010 moves.  This indicates that the demand for dollars is actually not very strong.  It means that the money that is leaving the euro and yen is going somewhere besides in to dollars.

And how come no one on Wall Street is talking about the dollar vs. the currency of the largest import/export nation in the world?  The country that is currently accumulating gold at a rate that is soaking up most of the amount of gold that is mined annually?

Here’s the dollar vs. the Chinese renminbi/yuan (click to enlarge):



The dollar is down 2% against the yuan since May.  So much for the strong dollar theory.   What this whole situation means is that U.S. exports to Europe are going to get pole-axed and the cost of everything the hoi polloi buys in this country that originates in China is becoming more expensive.   Better stock up on halloween stuff now because those costumes will likely become a lot more expensive by the end of October…

Next time someone asserts that the dollar is really strong right now because our economy is getting better, try not to laugh out loud to hard…

9 thoughts on “The “Strong Dollar” Myth

  1. It doesn’t matter whether the Dollar goes up or down. The shills on WallSt celebrate both of it. There is always a positive spin for both scenarios if you want to sell something to the common populace.

  2. Dave, what do you make of the huge US Dollar Commercial short position from the latest CoT? (with the full understanding of the CoT’s shortcomings)

    1. I don’t really trust the COT especially now that JPM got caught rigging their reports. I think western traders who trade only western fiat currencies are playing grab-ass with each other. The relevant currency pair to watch is the $/yuan.

  3. Creditor currency ALWAYS strengthens in a credit crunch, NEVER the debtor.
    in a negative cash flow scenario, the creditor will sell some “inventory” from its debtor stockpile.

    conveniently, yuan is not in that 4-decade old useless “index”.

    u want to see something even scarier, graph a long-term chart (say 20 years) of the ratio of something absolutely real & essential, energy= $wtic, to $USB (by definition, the present value of a $100 face bond).

    it has been in a rapid log e exponential decay since late 1998, right around start time of Easy Al’s rapid ramp up mad money Y2K, when it hit 10.22 . so, interesting it shows up right there in BONDS, but not the dollar per se.

    post 2001 crash, it hit 5.89, then at that july/2008 top $147 right before the GFC it hit 0.80. 1 bbl crud worth more than a $100 FV bond.

    but even at the worst part of the late 2008 crash, that ratio retraced to hit only 4.
    even at the $USB ATH mid-2012, ratio hit only 1.92
    ratio today is 1.53 .

  4. I wonder how the greedy bastards that engineered this oncoming
    catastrophe can stand to look at their ugly mugs in the mirror
    knowing full well what they have done. May they all rot in hell.

  5. Hi Dave, Re. the dollar, I’m involved in the crude oil market. The volatility has been incredible. Word around the campfire has it that a daily tug of war is being fought between the Fed and the Russians to force the price lower. The Russians need the price to hold as close to 90 or higher as possible. This should be read as fed wants lower oil prices. It is like a proxy battle to try and reduce Russian cash flow. This would also help explain the propping up of the dollar to make the oil price go lower. In the bigger picture this will fail. As we both know artificial price suppression works until it doesn’t .

  6. Dave, it’s even more hilarious when you look at a chart covering decades.

    Also, there is one other possibility besides the Yuan when it comes to replacing the Dollar. It’s a long shot, but if Germany were to break away from the EU, its own currency could contend as well.

  7. Hi Dave,

    I would like to offer a different explanation and Iam amazed you did not mention that in this piece since you post Exters inverse pyramid prominently on this site. The pyramid is collapsing as we watch and observe. Only to be replaced with base currency. From derivatives to bond and now to (digital) currency (skipping a few steps for easy reading). To me the strenght in the Yuan proves more people flee into the Yuan reserve currency then the USA reserve currency.

    The EU is happy they never intended to make the Euro a new reserve currency considering the Triffin dilemma. For the ones not knowing that principle, destroyer of reserve currencies since the year 1450. Europe had its share and wants non of that again (see the wars it brought). Considering how the EUro is constructed, issuing Euros from a free floating gold price and tons of countries doing the same (map, hat tip mr Sinclair)

    The non green counties issue their currency from the USA treasury mostly. That makes them a slave to the USA and means they must issue a new currency or keep going with the USA….

    Think about it. Debt crisis bigger then the great depression. Solution then was to confiscate gold. Now revaluing will do, no force , consiscation etc is needed. Just a destruction of paper gold. Ofcourse, the more people in your country with the metal will make the paper debt problem go away more easy. So till recently support paper metal so one can redistribute it widely along the population. Lybia, Iraq, Ukrain (and so on) prove that big stashes get stolen by a military force after all.

    Less and less USA debt being bought by the big players but metal…. lots and very strong. The government deficit spending is already feeding into inflation numbers. The best we can hope for is that the USA implodes like the USSR (and I bet u know that was not an accident how that all happend peacefully).

    I think the countries on mr SInclair his free valued metal against currencies will win this and not the war/debt model that is now dominant. We now all call many things money. I think we will at least (globally) learn the difference between wealth (instant real payment) vs currenty and learn to treat it that way. Seems to me in Asia, Russia, Europe they get it. Flow of value is currency, wealth, somehting that will be the same, we know it for millenia, exists for eons.

    Hope this made some sense, if not, let me spell it out. Half of earth issues their currency based on the USA treasuries they bought with their own currency since the owners of the USA currency want(ed) something from them so they could grow that way. If the USA dollar crashed, their currency dies (hyperinflation mostly). The others issue their currecy of from gold. Ah there we have the Hegelian dialectic again…

    regards Hugo

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