The rap music group, “Wu-Tang Clan” sings in “C.R.E.A.M.”: “Cash, Rules, Everything, Around, Me C.R.E.A.M. Get the money Dollar, dollar bill y’all.”
The United States dollar commenced a bear trend in spring 2020. Its depreciation probably will continue over the long run.
“Dollar Depreciation and the American Dream” (8/11/20) warned of and analyzed various reasons for a significant depreciation in the real Broad Dollar Index (Federal Reserve Board, H.10) from its lofty April 2020 high at 113.7. These factors generally remain in place. “American Inflation and Interest Rates: Painting Pictures” (5/4/21) stated: “Suppose United States inflation in assorted key indicators such as the Consumer Price Index continues to climb, and that America’s federal budget deficit and debt situation remains very dangerous. Suppose the Federal Reserve remained unwilling to tighten its current highly accommodative policies. Though much depends on other variables, including the economic and political situation in and prospects for other important countries around the globe, this scenario probably will tend to weaken the US dollar.”
January 2021’s real Broad Dollar Index at 103.3 approached a critical support level, March 2009’s 101.6 peak during the 2007-09 worldwide economic disaster (May 2021’s height is 104.1). A sustained break beneath March 2009’s elevation probably will be important for numerous economic playgrounds. Why? That dollar depreciation likely will occur alongside rising American inflation indicators and the major expansion of American federal indebtedness of recent years (with further national spending extravagance looming). This situation probably will increase pressure on the Fed to significantly reduce (taper) its quantitative easing (money printing) program as well as to boost the Federal Funds rate and thereby US Treasury yields. Climbing UST interest rates accompanied by a tumbling dollar probably will reduce the avid “search for yield/return” in the S+P 500, dollar-denominated debt securities (such as US corporate bonds) and other dollar-priced assets (including many commodities). These developments probably will trigger and sustain slumps in the S+P 500 and “related” asset arenas.
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Marketplace Rolling and Tumbling- US Dollar Depreciation (6-1-21)