Why Isn't the Dollar Collapsing Given Trillions in Printing?

Mish

US Congress has authorized several trillion dollars in Covid-fighting stimulus programs. So what's holding the dollar up?I

Think Outside the US

I remain amused by all the calls of hyperinflation and high inflation given the Fed has turned on the printing presses.

However, currencies cannot be viewed in isolation. 

To those expecting a total US dollar collapse, here's my word of advice. Stop being so US-centric. 

Japan Authorizes Another Trillion in Stimulus

Please note Japan authorizes another $929 Billion to Battle Pandemic.

Japan is considering a fresh stimulus package worth over $929 billion that will consist mostly of financial aid programmes for companies hit by the coronavirus pandemic, the Nikkei newspaper said on Monday. |

The package, to be funded by a second extra budget for the current fiscal year beginning in April, would follow a record $1.1 trillion spending plan deployed last month to cushion the economic blow from the pandemic.

That is a total of 2 trillion dollars for Japan. Adjusted for the relative size of the economies, that is an amazing amount.

China Unveils US$500 Billion Fiscal Stimulus

Also note that China unveils US$500 billion fiscal stimulus, but refrains from going all-in.

Key Points

  • China will increase its budget fiscal deficit to a record 3.6 per cent of gross domestic product this year, up from 2.8 per cent in 2019
  • This is the first time the ratio has exceeded 3 per cent – a red line for decades.
  • Beijing will also issue special treasury bonds for the first time since 2007 and increase the local government bond quota as it fights the pandemic

Supposedly that is not "All In." And given what is going on elsewhere it isn't. 

But the Yuan is not a component of the US dollar index. And it is important that China is crossing red lines.

Unprecedented EU Stimulus

On April 23, the EU leaders announced ‘Unprecedented’ Stimulus Against Pandemic.

Hold On, a Major EU Court Battle Brews

On May 10, I noted a Major Court Fight Between Germany and EU Looms

Briefly, the German constitutional court ruled that the ECB abused its powers ruling on the ECB asset purchases as implausible, and objectively arbitrary.

Debt Mutualization

What Germany fears now and has from the outset is "debt mutualization" in which Germany would bailout Greece, Spain, Portugal, and Italy. 

And despite the German court ruling, Pablo Iglesias, Spain's Deputy PM. says a “certain [level of] debt mutualisation is a [necessary] condition of the [continued] existence of the EU”.

Eurozone Breakup Risk 

The EU once again faces a breakup crisis.

This setup prompted my May 8 post: Eurozone Breakup Risk at New High

With negative interest rates in the Eurozone and a breakup risk high and rising, it's no wonder the Euro is not strengthening.

US Dollar Index

The US Dollar Index is a weighted geometric mean of the dollar's value relative to following select currencies: Euro (EUR), 57.6% weight. Japanese yen (JPY) 13.6% weight. Pound sterling (GBP), 11.9% weight. Canadian dollar (CAD), 9.1% weight. Swedish krona (SEK), 4.2% weight. Swiss franc (CHF) 3.6% weight.

US Negative Rates Are Not an Option 

Given the US dollar index weighting, it's no surprise the dollar is holding up. 

Factor in Fed pledges to not let interest rates go negative, and a huge emerging market demand for dollars and you have your answer.

For a discussion of negative rates, please see Negative Rates Are Not an Option.

Meanwhile given all this competitive currency debasement, I have a question: Got Gold?

Mish

Comments (56)
No. 1-23
Tengen
Tengen

For hyperinflation to occur the money has to circulate to the general public, and for the most part it does not. We may see occasional rounds of stimulus payments like we did in 2008 and this year, but that's peanuts compared to the rest of the printing and liquidity injections.

In other words, in our "trickle down" approach where money is primarily inserted at the very top, the dollars won't flow far enough downward to matter. We'll see inflation in things like Cezanne paintings and ultra-rare baseball cards, but most people will never see this form of inflation or even know it exists.

dr smock
dr smock

Our congressmen know it, but the average US citizen doesn't. China is using its trade surplus to buy up our businesses, factories, utilities, and other tangible assets, thus propping up the dollar vis a vis the yuan.

Anda
Anda

With the amount of debt in existence you have a massive soak for new liquidity, it adds up to new replacing old. The problem is that this shift in money supply changes the economy, from social to private to political - it is a big gamble, a big attempt to restructure the previous framework into the future. I'm not sure it will work, I'm not sure that the very attempt isn't a form of failure.

Meanwhile, some now decide they cannot reach higher ground without conceding ground to the rest

Or maybe just realised that their investment is in trouble if they don't fund it.

Others are not trying to reach higher ground

which makes it easier, unless of course anyone considers common ground higher somehow - after all, how can you represent and have a say over everyone if they stand out or aren't included somehow ? I suppose though that perpetual forms of exclusion will be found somehow, as there would be no possibility of playing the role of the more equal otherwise.

tokidoki
tokidoki

Does that mean we've been doing things wrong so far? Like why not just print money and stop working then?

Cbb
Cbb

Hyperinflation claims are ridiculous, also inflation expectations will not materialize, the newly created/printed money is in credit, means it goes to companies who is eligible, but its still a debt, it has to be paid back and banks will take collateral before giving this money, so they cannot arbitrarily spend this money and buy things which can cause prices to rise due to demand, they have to do business with this money, make a profit and pay back the debt, its not same like stimulus check given to each person which can be spend on anything and will not be paid back and can cause inflation.
Fed printed and gave a very small part of its balance sheet(about 5%) to citizens as a free money, but if things change and Fed gives away trillions of dollars helicopter money to citizens , then we can talk about inflation.

MiloSpeaks
MiloSpeaks

The dollar isn't going to collapse. The basic necessities, having been commoditized, won't see inflation. But the things that are most important to a middle-class life, like education, healthcare and housing, will continue to rocket into the stratosphere, as the rich 10% chase them with unlimited dollars shooting out of the Fed.

anoop
anoop

Scooot
Scooot

As Mish says the dollar isn’t going to collapse against the other main fiat currencies because their governments are also issuing trillions of debt (or printing), but the dollar has devalued against the main reserve currency, Gold.

The additional trillions that are circulating are repricing bonds and holding down yields which, as everything is relative, is holding down yields, interest & profit margins on everything else. This in turn puts downward pressure on wages and earnings as businesses struggle to make the required dollars and unemployment & business failures follow. To date businesses have offset this with gearing and turnover but the virus has put an end to that. Governments, emboldened by their successful debt issuance & money printing are now embarking on the giving of free money to those that have unfortunately lost their jobs. If it continues something will have to give, but what?

RayLopez
RayLopez

@Sechel - a 500B Euro recover fund is only 500/18292 = 2.7% of the EU nominal 2019 GDP, so it's not such a huge amount. Probably the bulk of it goes to bailing out airlines, hotels and the banks that lent to them.

RayLopez
RayLopez

As Mish says, "Got Gold?"

Amelia_C
Amelia_C

Hi Mish, no doubt the $ is holding up because of more significant unaccounted factors, e.g. total global USD-denominated debt, competitive debasement, etc.

So far, what the Fed has printed is merely filling up the hole of debt-deflation. But shouldn't there be a point where the amount of printing gets too much and it starts to produce inflation? I'm not referring to FX rates, but more towards commodities & asset prices.

The Fed is using the printed money to buy Treasury's and when the fiscal spending gets too profligate, shouldn't there be a point where the market balked from treasury's -- and rates start rising during recession (i.e. stagflation)?

I will admit that this may likely be still quite a distance away, but surely there is a an amount (maybe a ballpark figure) of how much this printing amount should be, to cause this kind of outcome, isn't it? If and when this happens, what do you see the resolution (endgame) will be?

Hopefully you will share your views on this. Thanks.

UrbanDigs
UrbanDigs

Fed printed money, via treasury purchases, are going to stimulus for main street and to fund govt. Unemployment claims, stimulus checks, etc etc..

Trey LePark
Trey LePark

I believe this is what I said the other day, but not in so many words. This game will continue as long as everybody plays it. At this point, none of the players can quit.

Bam_Man
Bam_Man

$USD = Purest gal in the whorehouse.

EVERY fiat currency (including and especially the $USD) is no longer fit for the purpose of settling international trade - and hasn't been for decades.

Aethor
Aethor

That the dollar isn't collapsing against other currencies isn't a proof that there is no inflation, since those other currencies are being printed (electronically) as well.

Inflation should be evaluated in the context of purchasing power of average people vs prices of things they need - housing? food? health care? anything else?
Because you cannot print houses, or fried chicken, or cars, or...

Do that and you will see inflation.

Oh and the fact that the stock market did not totally collapse - how much printed money went into that? But that's inflation. It's not like stocks still have the same value, measured in how much house or food or health care you get when you sell them.

Montana33
Montana33

Thank you for reminding people once again that the USD value is relative to other currencies. The Fed CAN ONLY BUY BONDS which pumps up bond values and forces wealthy investors into stocks and pumps up stock prices. Global, wealthy investors are overjoyed. That's why the stock market is so high! We get inflation in asset prices because workers get zero benefits. Wealthy global investors (US and non-US, top 10%) own more than 80% of our stocks. Bottom 80% of US households own only 7% of US stocks. THAT'S WHY THE FED IS SCREAMING AT THE POLITICIANS TO GIVE MORE MONEY TO THE AMERICAN PEOPLE! Working people have to pay off all of the debt (remember the corporate tax cut?). China and Saudi Arabia are huge benefactors/holders of US investments. The Fed begs the Republicans to send some money to average people, and they say things like "I don't want to bail out a Blue State" or "unemployed people won't go back to work if they have unemployment." Average Americans have no idea that the printed money is welfare for the rich. If we are too dumb to understand where our money goes, then we are ripe for abuse. Trillions to pump up the rich and almost nothing to working Americans. That's why inflation is actually deflation now. American workers will get lower wages, just watch. This is so simple to understand.

lastchance
lastchance

Those whom I respect suggest that the timing is right, so that based on information in the book of Daniel and Revelation-I can give you chapter and verse-the European Union will eventually devolve into 10 nations, some will be strong as iron, some weak as clay. I mention this because as this begins to take place within say the next 10 years, the dollar will probably have been replaced by a worldwide currency which could be digital backed by a group of commodities.

Jdog1
Jdog1

People just don't seem to get it. Debt default is money destruction. The amount of money destruction that is occurring now, and will occur in coming months dwarfs the amount of money being borrowed and dispersed by the government. Remember also that a good portion of the loans world wide, are denominated in dollars, so as loans default worldwide, dollars disappear. Money destruction is deflation.

amigator
amigator

Can we revisit the calculation of the CPI or whatever the fed is using? It seems there is a good amount of inflation in things I have to buy. Health Insurance, House, cars, clothing, stocks. Is there a disconnect somewhere? Maybe a little education would help!

Worker
Worker

Inflation is always the result of demand being greater than supply. Has nothing to do with the amount of currency in circulation. I guess if everyone has a lot of money, they may buy more, but in today's climate, people will save it instead.

tonycarangi
tonycarangi

So, should I hold gold, I am considering selling it oh, it seems to be going nowhere for the last 10 years

lastchance
lastchance

Hi Mish I’d like to thank you for allowing me to post this information the other day though I know you don’t agree. I’m sure you are aware of “What is the fig tree sign?”The answer is certainly not at all ambiguous. Other than that I wonder why gold has turned around today after an early surge?

CanadianGoatfarmer
CanadianGoatfarmer

Amazing that we have long forgotten the 'real value' of...... the dollar/money, time, or food. We have ALL lost our way, when it comes to figuring out what is worth..... or what coats too much.... or if hyper inflation or inflation will occur. The fundamental question we should be all asking right now: if there is something you "NEED" .....what are you willing to give , or give up , to get it? This covid 19 exercise ,we are all experiencing right now, will likely get us all closer, to this question. Note, 98% of North Americans live in urban settings.....in short, work somewhere other than on a farm. Growing food is the ONE thing we have been trained, coerced, manipulated, louered, bribed, marketed to NOT do. To not grow food. Why? ........ where do we go next? I am new here, but if you wish to continue this discussion. Lets do it. Continue.I will also add my email riversedgewill@conversation gmail.com Yes, I amreally a goat farmer and I grow my own commodities and surplus food. Gold? Who needs gold !


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