Can the U.S. Dollar Become Almighty Once Again?

A stronger dollar could be a bellwether of an improving economy and a brighter outlook for U.S. stocks.

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Financial turmoil in Cyprus, where the parliament rejected a plan an eurozone bailout deal that would have taxed bank deposits, is prompting investors to shift cash from the euro zone to the U.S. That’s boosting the value of the dollar — and it’s just the latest installment in a story that has helped the dollar strengthen for more than a year.

Despite gridlock in Washington and a string of economic mishaps, the dollar has risen by 7% since late 2011. That’s a striking turnaround for a currency that was in relentless decline for decades. If the upward trend continues – and there are good reasons to think it will – then the U.S. dollar could become almighty once again.

The dollar’s decline over the past 30 years has been far greater than most Americans realize. It has lost almost half its value against other major currencies since 1985 and is down 33% in the past 11 years alone. Indeed, the value of the U.S. dollar is lower today than it was in 2009 when the recession ended. In part, this fall occurred because of government policies in Europe and Japan that kept the euro and the yen overvalued.

A weak currency can bolster a country’s economy in the short run, by making goods cheaper for foreign buyers and thereby encouraging exports. But over the longer term, a robust economy is typically accompanied by a strong currency. A currency rises in value when more foreign money is flowing in than is flowing out. These inflows occur not only because of export sales but also because foreigners see investment opportunities or are seeking safe places to park their cash. As a result, a stronger dollar is a bellwether of an improving economy and a brighter outlook for U.S. stocks. And there are three reasons economists think the dollar’s rise could continue:

(MORE: Cyprus: The E.U. ‘Rescue That Risks Backfiring)

Other major countries are worse off economically. The U.S. economy may be sluggish, but it has grown for 14 straight quarters since the recession ended in mid-2009. By contrast, the Eurozone economies shrank last year and are expected to contract further this year. Moreover, two of the most troubled countries are Italy, which just had an indecisive election, and Cyprus, where yesterday the parliament rejected a plan to levy a one-time tax of up to 10% on bank deposits to raise money for a bailout. The U.K. is on the verge of its third recession since 2008. And China is retrenching because it fears a potential financial crisis. By comparison the U.S. economic outlook appears rather tranquil.

Other major currencies are still overvalued. One way to assess currencies is to compare how much they can buy in their own countries (known as purchasing power parity). By this measure, the euro, the yen, and the British pound are still overvalued by anywhere from 2% to 10%. Other currencies, such as the Australian dollar, Canadian dollar, and Swiss franc are even more overvalued. The only important exception to this pattern is China, which has long held down the value of its currency to encourage exports. The likelihood is that some of the overvalued currencies will depreciate in the coming months, thereby increasing the relative value of the U.S. dollar. If that does happen, the U.S. will not only remain an economic safe haven attracting investors who want to escape economic turmoil, but also an attractive place to invest for those who want to move out of declining currencies.

The U.S. dollar could become a sort of petrocurrency. Russia, as well as much of the Middle East, has long been sustained by the value of their energy exports. Now the current energy boom in the U.S. could help boost the dollar in two important ways. First, petroleum imports have turned down for the first time since the early 1980s. U.S. imports of foreign oil have fallen 40% over the past seven years, according to the International Institute for Strategic Studies, which predicts that the U.S. could achieve self-sufficiency in petroleum within the next two decades. That helps our balance of trade. And second, to the extent that overall energy costs rise more slowly, most sectors of the economy will enjoy slightly lower inflation pressures and slightly higher growth. That in turn will improve profits and support the economic recovery.

(MORE: Why the Better Business Bureau Should Give Itself a Bad Grade)

The quiet turnaround in the dollar helps explain why GDP has continued to grow and why the stock market has kept rising despite tax increases and spending cuts that are eating into the living standards of many Americans. There’s no guarantee, of course, that this trend will continue. But for the time being, all of America’s trading partners appear to be pursuing policies that will weaken their currencies. Japan’s new central bank chief, in fact, has called explicitly for devaluing the yen to stimulate the Japanese economy.

Quantitative easing in the U.S. – and the increase in the money supply that it produces – could still undermine the value of the dollar over the long term. So could runaway spending. The best policies for America now would concentrate on reining in entitlements rather than trying to reduce the short-term deficit further, either with tax increases or spending cuts beyond what’s already scheduled. It also makes sense to encourage the domestic energy boom, which will not only improve America’s security but also give both the economy and the dollar a little extra lift – perhaps for decades to come.

27 comments
libertees
libertees

Sure, if history is always wrong then sure. Keep printing away. 

gopvictory
gopvictory

With a $16,500,000,000 national debt, no.

IanWalker1
IanWalker1

Rossi's technology is due out in the next few weeks with a third party report, that has just been finished and confirms LENR is real and is a game changer. Dennis Bushnel Chief Scientist at NASA Langley Research Center has already confirmed LENR isreal:
http://futureinnovation.larc.nasa.gov/view/articles/futurism/bushnell/low-energy-nuclear-reactions.html

Lockheed Skunk-works are creating a prototype fusion space/aircraft. While another Aircraft this time from Boeing with NASA which has now been classified though many had already downloaded the report. A search in the Google Archive for: nasa lenr Boeing SUGAR contract site:nasa.gov filetype:pdf shows its existence still. Here is the message you now get when you try to get hold of it now:
http://ntrs.nasa.gov/archive/nasa/casi.ntrs.nasa.gov/20110011321_2011011863.pdf

A Fusion engine for NASA spacecraft is being researched:
http://www.nasa.gov/pdf/716081main_Tarditi_2011_PhI_Aneutronic_Fusion.pdf

udom7a
udom7a

The world has changed, the importance of the dollar will gradually adjust to the changes, denial is dangerous .

SushilPershad1
SushilPershad1

Yes By Improving Home Production Cutting Production Costs To BE competitive In The World Markets There By Reviving US Industries Turnaround   The US Economy .!!

ridesa
ridesa

I think Senator Paul Ryan put it best saying that the Fed is one of the more healthier horses at the glue factory. Currency weakness has been displayed throughout the world. As long as the Rothschild clan can push and shove their way through weak countries the dollar should survive. Still there are problems with debt and being able to reimburse our creditors as well as the bankers who control our currency. As long as we have property and citizen bank accounts as collateral our creditors should be content.

dobermanmacleod
dobermanmacleod

Petrol dollar huh?  Soon this new clean and very very cheap energy technology is going to hit the market.  Here is a primer:

"A volume about the size of a #2 pencil eraser of water provides as much energy as two 48-gallon drums of gasoline. That is 355,000 times the amount of energy per volume – five orders of magnitude." ( http://oilprice.com/Energy/Energy-General/New-LENR-Machine-is-the-Best-Yet.html ).

This phenomenon (LENR) has been confirmed in hundreds of published scientific papers: http://lenr-canr.org/acrobat/RothwellJtallyofcol.pdf

"Over 2 decades with over 100 experiments worldwide indicate LENR is real, much greater than chemical..." --Dennis M. Bushnell, Chief Scientist, NASA Langley Research Center

"Total replacement of fossil fuels for everything but synthetic organic chemistry." --Dr. Joseph M. Zawodny, NASA

By the way, here is a survey of some of the companies that are bringing LENR to commercialization: http://www.cleantechblog.com/2011/08/the-new-breed-of-energy-catalyzers-ready-for-commercialization.html

For those who still aren't convinced, here is a paper I wrote that contains some pretty convincing evidence: http://coldfusionnow.org/the-evidence-for-lenr/


CalebMurdock
CalebMurdock

Let's not be so fast to "reign in entitlements" or "encourage the domestic energy boom".  Giving the dollar a boost isn't worth destroying the safety net or harming the environment.  This writer, Michael Silvy, is giving conservative advice in the guise of an impartial economist.  Don't be fooled.

jeleon
jeleon

The only way to make the US dollar almighty is building products in the USA. US companies have fantastic products but they are built overseas. http://t.co/0ZXNXz2VxW.

Calm47
Calm47

There will be a new era of the almighty dollar, nor can return era almighty pound. Development processes are irreversible. But the dollar will still be the leading reserve currency. It simply can not be replaced. Neither the euro nor the yuan so far this role is not suitable. Changes in the world are of such magnitude that it is unlikely to maintain the current financial and monetary system as such ( http://crisimir.com ). New production system will require other tools.

JonathanMartin
JonathanMartin

What the author does not mention is that the reason the US dollar is so strong is because it is the reserve currency of most countries. For this reason, as Triffin and Rueff demonstrated back in the 70s, the dollars exported are immediately reinvested in america. This overvaluation has destroyed manufacturing and simply exports our inflation over seas, leading to financial crises there, like in China right now. This fragility and perpetual instability is the price the world's governments have paid for getting away from the dicipline of the gold standard. In trying to make themselves richer, they are making themselves poorer - only the elite get ahead in this system.

antonmarq
antonmarq

Simple answer, yes; when the Federal Government takes away the production of moneys away from banks. Issue new low interest currency, which will reduces the national interest to sanity levels. Banks are nothing more than the ultimate Ponzi scheme that is the underlying factor of controlling our government.

tpaine
tpaine

US "growth" was extended ONLY because of the Commerce Department's tinkering with the 4Q 2012 numbers.  Initially, it showed a negative growth following the Democrats across-the-board tax increase.

If the US dollar is the strongest currency in the world - the world is in BIG trouble.  I would suggest that government overspending and socialism in general is ruining the world's economy, but that's just my opinion.

zbigkid
zbigkid

This is such a mis-leading article. The US dollar has not risen.  Period. Its just declined at a rate less than all the other currencies that are debasing in the basket of currencies it is indexed against. 

It'd be like dropping a brick from a hot air balloon, versus a cardboard box of the same size. They are both falling, but the brick is falling faster.  You would never say that cardboard box is "rising" if you were looking at it by itself. 


The only possible way to compare the dollar to anything is to compare it against real money. Gold coins or silver coins would be two such currencies. Versus gold, the dollar has dropped like that brick. Versus Silver the dollar has dropped like that cardboard box. 


The only thing that has kept massive inflation at bay here in the US in most goods, is the fact that nearly all our goods are produced in other countries, with far cheaper labor, and far less government costs and far less taxation. In essence they have exported deflationary characteristics such as cheaper labor here.  But if you look at something that can't be exported here like a College Education, or Health Insurance premiums, those have been skyrocketing. Its a precursor to hyperinflation. Health care has been rising at over 10% per year since 1990. Now its about to go parabolic.  Watch for premiums starting next year to be anywhere from 60% to 100% higher than this year's premiums you signed up for in January. College costs have been doing the same, and are also about to get even worse. With the amount of debt that continues to grow, also now exponentially, the value of the dollar will continue to plummet. People don't allow yourself to be mis-led by the propaganda in the above article. Its to appease the media, who is controlled by the government, and owned by moneyed interests that have nothing more in mind than to continue to gut the middle class, while keeping those below the middle class, happy and fed via welfare and entitlements or SNAP, so they don't riot.   That 'boom' in domestic oil here ? and shale gas ?  Its coming at great expense and cost and is only viable with oil above $90. Its not a boom either. Its a blip, thats occurring before we see yet another parabolic rise in oil. Shale gas ? Theres a lot, but don't count on that lowering your overall energy costs for electricity, or home heating.  Its going to be exported, while prices continue to rise, and other countries are willing to pay steeply for it. There will be plenty here IF you can afford it. The shale stuff will be sucked dry quickly, and while it will help dampen the effects of not being able to get oil from the saudi's, keep in mind the rest of the now developed world like China,and India will be drinking from that same straw.  Supplies will not keep up with demand.  China will keep striking deals for every possible source of energy it can. 1 billion plus people who wish to not just survive, but "prosper" will be demanding it.  Thats just China.  The US will no longer be able to afford to consume 25% of the world's energy sources, while only having 300 million people. 7 billion people on the planet will demand that it not be so. The end result of that demand, is massively rising prices for the US.  You wont be able to get into hybrid vehicles fast enough, and the cafe standards cant happen soon enough.  You'll be wishing you had a 50 to 70 MPG vehicle within the next 3 years.  You wont be able to afford it though. Again. Dont be misled by this 'strong' dollar bs. 

JoeDSmith
JoeDSmith

Can the US dollar be saved? Not as long as the Federal Reserve exists.

CluedIn
CluedIn

> A weak currency can bolster a country’s economy in the short run, by making goods cheaper 

> for foreign buyers and thereby encouraging exports.

The article fails to point out the weak dollar was engineered by the Bush/Cheney administration, which said a weak dollar  was desirable. 

http://www.nytimes.com/2007/08/08/opinion/08wed1.html?_r=0

http://www.businessweek.com/stories/2005-03-13/bushs-worrisome-weak-dollar-policy

http://www.bibliotecapleyades.net/sociopolitica/esp_sociopol_911_74.htm


As usual with conservatives who are supposedly better at economic matters than liberals, they went for the quick, short-term fix to the detriment of the big picture. Then dittohead idiots blame the current administration for the mess it inherited.

If this were an honest website it would explainall  that, but it won't, so I will.


j.villain1
j.villain1

The US is going to be atleast 20 trillion dollars in debt before they get the deficit under control. The only way to deal with that is to deflate it away which the US has been doing which is why the dollar is down so far. Wait for the bloomers to finish their retirement years and then get back to us about whether the  USD can be a reserve currency.

Leftcoastrocky
Leftcoastrocky

strong dollar hurts our exports and thus our jobs

bryanfred1
bryanfred1

"Quantitative easing in the U.S. – and the increase in the money supply that it produces – could still undermine the value of the dollar over the long term."

How is this buried in the last paragraph?  The money supply has expanded dramatically in the last few years and the prices of commodities reflect it.  Oil is definitely not $95/bbl due to a roaring global economy.  Right now the U.S. benefits from the dollar being the least-bad store of value on the planet.  As foreign economies recover there will be less demand for dollars and Treasuries, at which point the real impact of easing and printing will be felt.  I'd love to think the Fed and Treasury will know when to turn off the spigot but history is not on their side.

IanWalker1
IanWalker1

Meanwhile the major Oil Companies have been selling off their Oil Fields and major capital investment firms are shorting the Oil Industry.
http://oilprice.com/Finance/investing-and-trading-reports/Why-Are-the-Big-Financial-Institutions-Selling-Oil-BIG.html

How come all the major economic media missed that?

I am surprised so few journalists noticed all the oil companies were selling up and that Siemens sold off all its Nuclear Power Industry assets as well as their 33 Billion Dollar green power industry of Wind Farms and Solar Power where they were market leaders and that no one is building Nuclear Power Plants and even Hydro electric projects are getting "postponed"

jeromey
jeromey

@CalebMurdock Yes. Further clues to his perspective are in his references to runaway spending, tax increases and spending cuts beyond what is already scheduled. Runaway spending is Republican-speak for cut government services. Tax increases restored social security and medicare contributions that were temporarily suspended. Current spending cuts under sequester are an affront to rational governance that should never have been enacted.

JasonBies
JasonBies

@CluedIn finally someone who understand.. I was so pissed when I heard that Bush said they would rather have a weaker dollar to be able to compete on the global market long term, but look where we are? What has it gotten us? NOTHING!

jsherm
jsherm

@CluedIn Thanks for the linking to sources. I swear I've never known a group to just make stuff up or regurgitate the Fox news mantra like the current conservatives. There should be a google search box to the right of every post so they can fact check before hitting submit. 

zbigkid
zbigkid

@j.villain1 the deficit cannot be brought under control. its too late. Ben has to buy the debt at the rate of $85 billion per month or the government and banks will collapse. Soon it will be at the rate of $150 billion per month, and that wont be enough.  hes doing that because no one else is capable of buying that much debt, and nor do they want to at near zero interests rates. So also if he doesn't monetize and print money out of thin air, and buy that debt, then interest rates explode over night. Then the government again collapses due to the cost of servicing existing debt.  The current debt costs the US more than $300 billion per year, and its at an average rate of less than 2.5 %.  rates go up even 1 %, $300 billion increases to $420 billion. If rates go to historical averages of 5%, then debt service explodes to $600 billion. $600 billion is what we spend on defense each year. And we now are short covering our expenses by $1.2 trillion.  So the deficit continues to explode each year, making the debt service higher even without any interest rate increase. So now you see, Ben cant allow interest rates to rise at all.  And he cant stop QE at all.  Ben has himself cornered and every single dime he spends is owed by you the taxpayer. Just like what the government spends is owed by you the tax payer. None of the money he prints out of the air, is free.  Its just making the money you have worth less, which means your buying power continues to shrink while your debts continue to grow (both your personal debt, and also the national debt, which can only be payed for by taxes out of your pay check.)