In Lewis Carroll’s “Alice’s Adventures in Wonderland”: “For, you see, so many out-of-the way things had happened lately, that Alice had begun to think that very few things indeed were really impossible.” (Chapter I, “Down the Rabbit Hole”)

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CONCLUSION

“US Dollar and Other Marketplace Adventures” (2/5/23) stated: “Based upon the Federal Reserve Board’s real and nominal Broad Dollar Indices, the United States dollar probably established a major top in autumn 2022.” This remains the case. 

The US dollar also probably made an important interim top during October 2023. 

Variables encouraging US dollar weakness include America’s declining share of global GDP in an increasingly multipolar world. In addition, the nation’s federal debt situation is fearsome and worsening, especially from the long run perspective. America’s severe political  divisions, ongoing and wide-ranging culture wars, and the upcoming 2024 national election season make substantive fiscal solutions unlikely anytime soon. Ideological splits and battles of course do not confine themselves to the United States. However, the severity of those in America, as well as substantially diminished faith in many American institutions, help to encourage dollar weakness. The very uncertain outcome in America’s 11/5/24 election makes ownership of the US dollar and dollar-denominated assets seem increasingly risky. The potential for legal (including Constitutional) troubles relating to Trump’s Presidential candidacy are part of this worrisome picture. 

After US and international consumer price inflation soared in 2022, the Federal Reserve has been a leader in the quest to reduce it to tolerable levels. Its monetary policy tightening program (including rapid boosts to the Federal Funds rate, cutting the size of its enormous balance sheet, and hawkish rhetoric) has played a key role in creating and maintaining a very strong dollar. To the extent the Fed changes its policy to a less restrictive stance, its leadership role probably will tend to depreciate the dollar.

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US Dollar Voyages- Adventures in Wonderland (12-3-23)