why is the dollar index surging?

[tmosley]

I must say, I find it amusing how almost every week I see someone stating that we are right on the verge of the collapse of the dollar when it starts trending down. "Get ready!", "The price of gold is about to explode!"

But then, just like clockwork, the dollar recovers substantially and everyone is left scratching their heads once again. People then try to rationalize it. Some conspiracy theories rear their heads up, talk of deleveraging occurring usually enters the fray, and then the cycle rinses and repeats itself. Another day on the market.

Don't prepare. Watch TV like a GOOD little consumer.

 

[MrNick]

Wouldn't raising interest rates and restricting the money supply stop inflation and a weak dollar? I don't see why if hyper inflation hits they don't just take the extra money out of the system and save the dollar?

 

[RSLudlum]

Wouldn't raising interest rates and restricting the money supply stop inflation and a weak dollar? I don't see why if hyper inflation hits they don't just take the extra money out of the system and save the dollar?

Ever try taking away a baby's pacifer from him when he really wants it? It's not a very nice experience.

 

[DFF]

Wouldn't raising interest rates and restricting the money supply stop inflation and a weak dollar? I don't see why if hyper inflation hits they don't just take the extra money out of the system and save the dollar?

Oh, believe me, interest rates will rise. Probably next year, assuming we don't go into a deflationary spiral...

 

[AmericasLastHope]

Ok.

So there is no proof that the IMF sold any gold, eh?

True, no proof. I just saw the post and hoped it had really happened, guess not.

 

[Stary Hickory]

Well while reading Rothbard's the great depression, we were actually supporting the British economy, thanks to Strong at the NY Reserve Bank. And we managed to prop up the pound quite a few times, despite England being in dire straits economically.

I really see us playing the role of the British in this current crisis, and when other nations pursue inflation policies it will prop up the dollar too.

 

[danberkeley]

Well while reading Rothbard's the great depression, we were actually supporting the British economy, thanks to Strong at the NY Reserve Bank. And we managed to prop up the pound quite a few times, despite England being in dire straits economically.

I really see us playing the role of the British in this current crisis, and when other nations pursue inflation policies it will prop up the dollar too.

Definately,

 

[NolanLawson]

From http://mises.org/story/3236:

Which brings us to the second question: for better or worse, does deflation actually loom at present? If it does, its occurrence will surprise me greatly, because the Fed has been creating base money as if there were no tomorrow, and if the bailouts continue, as seems likely, more of the same is virtually certain. So far, the huge spurt in base money has simply been absorbed and held by the banks in the form of (legally) excess reserves, but the likelihood that the banks will sit on $268 billion of excess reserves forever is nil. Once they feel more secure, their loans and investments will go forth in search of a higher yield than the Fed pays them (since a recent change in policy) on their reserves, and at that point the banking system's money multiplier will kick in with terrific force.

Put simply - the banks are holding onto a ton of money in reserves, which is making the money supply contract (i.e. value of the dollar goes up). In fact, they're operating at about 100% reserves. They're going to keep contracting, though, as long as they have to keep writing off the losses from their mortgage loans that went sour. Those losses make them feel shaky, so they are reluctant to loan.

But as soon as the dust settles over this downturn and the banks start feeling safe about lending again, it will be a race to the bottom! Each bank will try to loan out as much as possible (and they'll have a lot!), the money multiplier will kick in (isn't the reserve ratio for commercial banks 0% now?), and we'll have hyperinflation. The ironic thing is that it will probably happen well after the media declares that the recession is over.

I have no idea when this will actually happen, though. Maybe within the next 2 years? Anyone have a guess?

 

[icon124]

From http://mises.org/story/3236:



Put simply - the banks are holding onto a ton of money in reserves, which is making the money supply contract (i.e. value of the dollar goes up). In fact, they're operating at about 100% reserves. They're going to keep contracting, though, as long as they have to keep writing off the losses from their mortgage loans that went sour. Those losses make them feel shaky, so they are reluctant to loan.

But as soon as the dust settles over this downturn and the banks start feeling safe about lending again, it will be a race to the bottom! Each bank will try to loan out as much as possible (and they'll have a lot!), the money multiplier will kick in (isn't the reserve ratio for commercial banks 0% now?), and we'll have hyperinflation. The ironic thing is that it will probably happen well after the media declares that the recession is over.

I have no idea when this will actually happen, though. Maybe within the next 2 years? Anyone have a guess?

Keep in mind there are many plans in place to absorb some of the money before it gets lent into existence. Not playing devil's advocate, but I'm pretty sure the Fed has taken this into account. I also know for sure they are making programs to offset inflation as well. Now how well will they do? I'm not to sure...me personally I'm betting on high inflation, and something near the 1970's level, but not hyperinflation and all out chaos like most people.

 

[DFF]

Deflationary pressure at home and the European Central Bank slashing interest rates on Thursday are why the dollars up.

 

[hugolp]

Deflationary pressure at home and the European Central Bank slashing interest rates on Thursday are why the dollars up.

Yes, the ECB is going the Zimbawe/USA way too. I had a small small hope that our central bankers would be a bit responsable, and there it goes down the toilet.

Hugo

 

[DFF]

Until the velocity of money, that is the speed at which it changes hands, picks up, all the new money in the world won't cause rampant inflation, and certainly not hyperinflation. Bernanke and his central bank partners in crime can print money like there's no tomorrow, but he can't make people spend it. This is why central bankers are terrified of deflation. Unlike inflation, they can't control it. Eventually inflation will return though, and when it does, it will come back with a vengeance. So in the interim, keep an eye on the dollar index. Around the time it reaches it's apex, gold, silver, and other commodities will be at their cheapest. It'll be a buyers market for stuff with real intrinsic value.

 

[HOLLYWOOD]

Deflationary pressure at home and the European Central Bank slashing interest rates on Thursday are why the dollars up.

BINGO, give that person a Cigar! (CUBAN no doubt)

the greenback gained on all except the YEN.

So 2 data points...

CHINA... MORE building, storing, hoarding Petroleum Strategic Reserves (buying cheap and increasing reserves)

Standard & Poors give U.S. Treasuries a AAA rating (A F$%KIN JOKE)

BTW, the same S&P that colluded with Wall st, and the FEDERAL RESERVE on rating all the Banks, FInancials, Corporations.

Good Ole Boy's Club

 

[DFF]

Cuban indeed!

Anyway, our pal Mr. Dollar Index is on a tear, currently up to 84.17.

http://www.fxstreet.com/rates-charts/usdollar-index/

A lot of people were questioning how low can the index go.

The relevant question now is how high can it go?

 

[icon124]

Deflationary pressure at home and the European Central Bank slashing interest rates on Thursday are why the dollars up.

I've been saying this...even when the dollar took a little dive a few weeks ago, but I get ignored and criticized for not following the doom and gloomers every second of the way.

When you say it you get recognition.

 

[MrNick]

Yes, the ECB is going the Zimbawe/USA way too. I had a small small hope that our central bankers would be a bit responsable, and there it goes down the toilet.

Hugo

If the Euro Becomes the world reserve currency that will help with inflation in Europe.

 

[hugolp]

If the Euro Becomes the world reserve currency that will help with inflation in Europe.

Honestly, it would be great for a while that the Euro becomes the world reserve currency. We would get nice booms payed by the rest of the world like the ones USA got for decades. But I dont see how the Euro is going to become the world reserve currency. In case the dollar goes down and the world decides to go for another paper starndar and not gold, I see the Yuan being used as world reserve currency more probable than the Euro.