A euro buys more dollars right now than it has at any other time in the currency’s history. Now, of course, that would be a much bigger deal if the euro had not been invented three years ago. But still, the anti-Bush media seems hell-bent on finding bad news, and if the expected “quagmire” never appeared in Iraq, perhaps it will appear in the international exchange markets.
BuzzCharts finds it a bit odd, however, that the doom-of-the-dollar story seems to have largely merged with the America-under-attack-from-the-Japanese-monster-called-deflation story. The reason this is odd is because deflation occurs when too few
dollars are in circulation, and a lower exchange value occurs when there are too many
dollars in circulation. In short, the liberal media is arguing that there are simultaneously too many and too few dollars in circulation. I guess this is what happens when you put your best political reporters on a financial story.
Here’s what’s really going on: Money is a commodity just like any other commodity, and its price is the result of two forces — supply and demand. Alarmism about the dollar’s fall is based on the misconception that demand is all that matters, and that, because the U.S. economy is in the tank, worldwide investors don’t want to buy financial assets denominated in dollars and therefore there is not enough demand to keep the price of dollars high. The chart above, however, shows that the forces of supply are currently driving this market. As noted in last week’s BuzzChart, the Federal Reserve erred in 2000 by dramatically raising interest rates, thereby deflating the currency; the mistake was eventually corrected in a series of consecutive interest-rate cuts that re-inflated the economy. When the money spigot is left open, prices rise and, ceteris paribus, the currency falls relative to other currencies.
For two years deflation ravaged the American economy; gold prices, commodities, profit reports, surging stock prices, and the fall of the dollar against the euro are all indicating the same thing — that the deflation problem has, to a significant degree, been dealt with.
A strong dollar is not an inflationary dollar nor is it a deflationary dollar; a strong dollar is a stable dollar and that’s what is currently being restored.
— Jerry Bowyer is a talk show host on WPTT radio in Pittsburgh, Pennsylvania. He can be reached through www.BowyerMedia.com.