What you did not know about the dollar and were too afraid to ask!

Nonsense. Nonsense. Nonsense.

The President and the Treasury Secretary are criticized for not speaking more forcefully in favor of a strong dollar. Other pundits pontificate in various media making us believe our low interest rates are the cause of the weak dollar.

Nonsense. In the 1970s Brazil had the highest interest rates in the world. Yet, its currency was falling apart. In the same decade, the USA had interest rates rising at much higher levels than Germany and Japan. Yet, the dollar collapsed against the Yen and D-Mark.

I was fortunate to grow up and finish my master studies in Italy. In those days the Swiss, the Germans, and the Dutch had very strong currencies against the Italian Lira. Their cars were bigger and the Italian government was giving them special coupons to buy gas at their home price, not at the outrageously expensive Italian prices.

It was not difficult for me to learn that a country with a strong currency is a wealthy country. No doubt about it.

The dollar has been in a downtrend since 2002. Why? Because there is more demand for non-US Dollar denominated goods and services than US Dollar ones.

Since 2004, exports of emerging economies among themselves increased a steady 22% per year. Exports to the USA slowed from 23% to 5%, according to The Economist.

Developing nations, in other words, are learning to live without the USA.

Technology is easily transferable if you have the money to buy it. The steady decline of the dollar is a strong indication that we are becoming a lesser player in world trade as the rest of the world raises its standard of living.

A currency reflects the productivity differential between two trading areas. Our politicians are ignoring this. We have to produce goods with the quality and performance required by our foreign partners. The decline of the dollar reflects our failure to achieve this endeavor. A strong currency is a challenging feat in a global market. You just do not "talk it up".

More on https://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977