| | | Truth is not relative... but prices always are. So, one must ask questions of sufficient depth to ensure answers capture the nature of the relationship. Relative to what... why... and when... sufficient for the need here now.
Looking at the 2nd chart, the one of the DXY vs the budget deficit... what I note, first, is that the lows in the budget deficit, easier to see as the reversals off the lows, tend to precede the reversals off the lows in the dollar index by somewhere between 2 to 4 years... But, the peaks in the budget deficit and the dollar index appear to be almost perfectly synchronous. So, knowing why that is might be useful. The second thing I note in that chart, is that on the left side of the chart the ratio between the two is nearly 2:1. In the middle of the chart it is more like 5:3... and on the right side of the chart closer to 1:1, or less than that ?
I'd guess the changes over time might be due to lower rates... altering set points... or due to a general enlargement in the scale of the references... ?
So, I'd look at that chart and wonder... why the dollar won't make historic lows in 2 to 4 years following the minimum in the coverage ratio being set in the deficit ? And that, even if the dollar index declines less than on a 1:1 basis... ?
But, while I don't currently see a path to the deficit growing smaller... and would expect taxes going up will make it larger... I don't take it as a given that Biden asking for $6 trillion in spending means he'll get $6 trillion in spending. But, I do think that from the Bush II Administration on, a growing number of Republicans recognize there's no political advantage to be won in obstructing... so slowing things down while pretending the giant hole already dug can be filled in... only prolongs the inevitable... while "going along to get along" can instead accelerate things. So, the best possible resistance... is to enable the inevitable and allow the failure to occur... and then clean up the mess afterwards... only when "correction" has been applied.
Negative rates are a new input... but certainly should work to accelerate the decline in the relative value of a currency compared to... anything other than that currency. I've not been a "dollar is dead" advocate, ever, because understanding that the dollar sucks... but everything else sucks just as bad, or is worse...
Except, that's not true of the commodities... which the chart shows have been in the long term decline... under-performing the rest of the market. There's no zero sum game here, though. The last five years have seen roughly zero investment in minerals and mining... whatever happens in the other commodities... there's not going to be any growth without minerals getting some love from the markets... with sufficient new investment to find, develop and produce minerals that should have been found, developed and produced five years ago... to make them available now to support growth. Instead, we're hard wired into a 3 to 5 year long FIXED deficit in minerals... Silver among the most obvious... demand continues rising, the growth they want will require a lot more than is available, the steadily falling supply having now worked off a generational overhang in a surplus... that is now gone... while production is in decline, and it will take 3 to 5 years to reverse that trend...
So, the issue isn't just understanding the dollar and things relative to it... but understanding prices relative to demand and supply for... whatever it is... and the alternatives. The long term suppression of minerals... can't continue... without that also preventing the future growth hoped for in the rest of the market. The dollar... can continue lower... even with other currencies rallying as rates are raised elsewhere. So, you might see an outflow of capital from the U.S. rather than an inflow... ? That's what the "solution" to the Repo Crisis in early 2020 bought. The "continuation" of QE out the back door... prevented a vastly worse global depression... but, it did that at American expense... as we took on the debt to fund a lower dollar to ease the rate pressure on the rest of the world that a soaring dollar in early 2020 was imposing...
A lower dollar will make American products more competitive in the market, again... and it will make for a commodities price boom... some rip roaring inflation... that both look like they'll last from 3 to 5 years... even though the drivers of those two things occurring in parallel are completely different...
And, then... given the dollar issues being one thing... and the commodity price issues being another thing...
Those are not the only two things that matter ? An obvious third issue... in the still unresolved issues left over from the GFC in 2008... The deficit as a dynamic... less relevant in larger context than the bigger issue in the scale of the debt relative to the global economy... at the end of very long period of expansion that has not been allowed to "correct" its excesses... since the "partial" correction back in 2001...
The "great reset" talk... has almost nothing to do with the short term issues ? If anything... the opposite... that knowing its coming has removed all restraint in the short term ?
I don't see that looming issue... being reflected at all in any of the charts presented... which has me thinking only that the charts are less useful... not that the problem isn't real ?
"Relative to what" requires an answer... only the more urgently... when that critically important"what" is being deliberately removed from the consideration... ? |
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