You are here
WSJ's Aaron Back: King Dollar is abdicating and that's OK
By Aaron Back
The Wall Street Journal
Wednesday, December 30, 2020
There are many reasons to expect a weaker U.S. dollar next year and perhaps for longer, but none more important than the new policy stance of the Federal Reserve.
The U.S. dollar briefly rallied in March due to its haven role in investment portfolios. Since then, it has dropped around 12% against a trade-weighted basket of currencies as the U.S. turned out to be even harder hit by the coronavirus pandemic than most major economies.
... Dispatch continues below ...
USAGold: Coins and bullion since 1973
USAGold, well known for its Internet site, USAGold.com, offers contemporary bullion coins and bullion-related historic gold coins for delivery to private investors in the United States, Europe, Canada, Australia, and New Zealand. It is one of the oldest and most respected names in the gold industry, with thousands of clients and an approach to investment that emphasizes guidance and individual needs over high-pressure sales tactics. The firm's zero-complaint record at the Better Business Bureau makes it an ideal match for the conservative, long-term investor looking for a reliable contact in the gold business.
Please call 1-800-869-5115x100 and ask for the trading desk, or visit:
USAGold: Great prices, quick delivery -- all the time.
As vaccines are rolled out and the global economy snaps back, this trade won't necessarily run in reverse. Rather, currencies of countries that export commodities and manufactured goods are likely to keep strengthening against the dollar, as would be seen in a typical global recovery. Some Asian exporters already are quietly intervening to limit their currencies' rise.
But this time, reasons to expect a weaker dollar run even deeper. For several years before the pandemic, U.S. interest rates on both the long and short ends of the yield curve were substantially higher than in Europe and Japan—a major source of strength for the U.S. currency. That premium has largely disappeared, though, as the Fed lowered short-term rates to near zero and launched a new round of asset purchases. The yield on 10-year U.S. Treasury notes has fallen from almost 2% at the start of the year to around 0.93% now.
Granted, that is still well higher than the 0.02% and minus-0.58% yields on 10-year Japanese and German government bonds, respectively. But real yields in the U.S. are in fact lower on an inflation-adjusted basis, points out markets economist Simona Gambarini of Capital Economics. In the U.S., the core consumer-price index was 1.6% higher than a year earlier in November. That compares with slight deflation in Japan and the eurozone.
This gap in real rates is unlikely to narrow soon. After all, the Fed pledged in August to let inflation run above its 2% target for an extended period and not to respond to falling unemployment with pre-emptive rate increases. Meanwhile, peer central banks around the world continue to target inflation rates of around 2% while falling well short of that.
If markets take the Fed at its word, they won't bid up the dollar as they normally might in response to robust inflation or growth data out of the U.S. This is why TS Lombard economist Steven Blitz calls the new framework an effective end to the traditional "strong dollar" policy of the U.S. government. ...
... For the remainder of the analysis:
https://www.wsj.com/articles/king-dollar-is-abdicating-and-thats-ok-1160...
* * *
Toast to a free gold market
with great GATA-label wine
Wine carrying the label of the Gold Anti-Trust Action Committee, cases of which were awarded to three lucky donors in GATA's recent fundraising campaign, are now available for purchase by the case from Fay J Winery LLC in Texarkana, Texas. Each case has 12 bottles and the cost is $240, which includes shipping via Federal Express.
Here's what the bottles look like:
http://www.gata.org/files/GATA-4-wine-bottles.jpg
Buyers can compose their case by choosing as many as four varietals from the list here:
http://www.gata.org/files/FayJWineryVarietals.jpg
GATA will receive a commission on each case of GATA-label wine sold. So if you like wine and buy it anyway, why not buy it in a way that supports our work to achieve free and transparent markets in the monetary metals?
To order a case of GATA-label wine, please e-mail Fay J Winery at bagman1236@aol.com.
* * *
Support GATA by purchasing
Stuart Englert's "Rigged"
"Rigged" is a concise explanation of government's currency market rigging policy and extensively credits GATA's work exposing it. Ten percent of sales proceeds are contributed to GATA. Buy a copy for $14.99 through Amazon --
https://www.amazon.com/Rigged-Exposing-Largest-Financial-History/dp/1651...
-- or for an additional $3 and a penny buy an autographed copy from Englert himself by contacting him at srenglert@comcast.net.
* * *
Help keep GATA going:
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
