The Dynamics Driving The Dollar Down
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod
Macleod looks at the imbalances between US dollars and other currencies and concludes that, should foreign holders decide to reduce their dollar exposure, the consequences for its value would be dramatic.
The dollar’s problems can be put down to those who think the state knows better than free markets. That is what has led to currency imbalances. Central banks attempting to manage economic outcomes by manipulating interest rates and stimulating economic activity have acted in defiance of Say’s law, which defines the relationship between production and consumption, and the role of a medium of exchange.
By dismissing this fundamental truth, the US authorities have made a stick for their own backs. Their determination to replace gold as the highest form of money with the fiat dollar has led to extraordinary levels of dollar accumulation about to be unleashed onto unsuspecting markets. A break below 100.50 on the dollar’s trade-weighted index will probably be the signal. It currently stands at 101.50.
Up for discussion: Say’s law says it simply; the altered character of the US economy; intervention by the Fed and US Treasury; and the Asian response.