Kudlow: King Dollar no more

Kudow has been on a soapbox about King Dollar, which has taken a beating as of lately.  Really the state of the dollar is much worse than forex markets might indicate.  As currencies are zero-sum games, the dollar is only being saved by the worse conditions in Europe. 

There is no real currency which is ready to replace the dollar.  The Yen is too regional and not big enough, as are the Brazilian Real.  The Euro could be in a place to compete with the dollar if only the Eurozone countries were not about to harakiri with further bailouts. 

That brings us to the Chinese Yuan.  China could be in a place to compete, but it cannot because it is actually pegged to the dollar.  Buying the Yuan is a defacto buying the dollar.  Obama wants the Yuan to float on the assumption that it will get stronger and reduce our current account deficit. 

The bad thing is that in floating the Yuan, it could be in a place to (at least partially) replace King Dollar. 

King Dollar may not be around for much longer if the US continues their pressing of China for revaluation and the Federal Reserve's ongoing Quantitative Easing.

Kudlow via townhall:
The Fed actually has opened the door even wider for more money-creating, balance-sheet expanding, Treasury-bond-buying actions at its next scheduled meeting, which will come the day after the midterm elections on November 3. That’s when QE2 may sail. “Quantitative easing” is what they call it. I call it dollar whack-a-mole.

Here’s a currency-trader quote from the Wall Street Journal: “Quantitative easing is broadly viewed to be corrosive to a currency’s value.” Right on, brother. Even though Bernanke doesn’t get it, the weaker dollar will rev up inflation mighty fast.
But right now, the reflation trade is king, not the dollar. Gold, commodities, some stocks, and foreign currencies are the place to be.
And do we really need more inflation? And should the Fed sacrifice the value of the dollar to get it?

Wall Street economist John Ryding doesn’t think so. He notes that over the past four-and-a-half decades, the consumer price index (CPI) has increased six-fold. So Ryding believes it’s absurd for the Fed to worry about a low inflation rate over the past year or so. Ryding is right.


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