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.
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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. 