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Thursday, March 19, 2015

A strong US economy is independent of the US dollar.

IKN - the question "Is a Strong Dollar Good for the U.S. Economy?" is a waste of time. Not exactly. Quote:
A correct affirmative statement is "A strong U.S. economy is good for the dollar".
To some extent, but you're still failing to see that it's a negative feedback.

Sure, if the US economy is doing well, people have to buy US dollars to move capital into its economy. But the rise in US dollar price then turns around and reduces the improvement in the US economy. The question is whether the economic situation remains net positive or not.

Also, as long as capital is still seeing a better deal in the US, the flows continue and the dollar remains strong, but at some point the flows stop and you're left with an economy fighting against an overly-strong currency. So at some point someday it becomes bad.

But to see where you are at this point in time, best is to take SPY (or $TRAN or whatever) as a proxy for the US economy, then divide out USD to see what it's doing ex-USD. And the chart you get:

Says that, certainly, the US economy is indeed doing quite fucking fine right now ta v. much. Fine to the tune of something crazy like a 25% appreciation in the past 6 months, in fact.

UPDATE: IKN sends me this response:

1 comment:

  1. Big rock is made up of small rocks.

    (By the way, your use of common language in a poetic context is sublime, sugar-tits)