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Economics

我们相信美元

Sep 21, 2022 Jeffrey Frankel

坎布里奇—尽管通膨猖獗，增长放缓，但美元仍在不断走强。自去年 5 月以来，美元兑日元和英镑分别上涨了 28% 和 20%。美元兑欧元升值 19%，自 2002 年以来首次达到平价。

从加权平均水平衡量，美元位于 20 年来的最高水平。事实上，以总体外币来衡量，它现在甚至比 2002 年还要高。比现在明显更强势的美元要回溯到 1983-85 年。

从某种意义上说，美元近期的反弹似乎令人费解。毕竟，飙升的通胀和持续的经济放缓应该损害对美元的需求。但美元目前的强势可以用美国经济的相对韧性和美联储的持续加息承诺来解释。

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vic lai Sep 21, 2022

It seems that the US patient has just been using the ongoing Ukraine war, and the resulting energy crisis in Europe, to blood-let the European patient, and then transfuse the obtained blood back to herself.
In other words, the US has just used the war dividend of the ongoing Ukraine War (and perhaps the potential Taiwan War as well) to substitute for her good old failing low-interest-rate dividend.
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A friend in crisis time is no longer the same friend in the good old days.
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The EU patient countries are now paying a heavy price for not having formed the all-important common EU Fiscal Union, the massively issued treasuries of which, supported by the ECB's new QEs, could have led to a massive inflow of Euroeuros back to the EU bond market in the past months, thereby sustaining the relative strength of the Euro vis-a-vis the US dollar, which has similarly been supported by the massive repatriation of Eurodollars back to the US treasury market.
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- vic lai Sep 21, 2022
  
  Without the recent massive inflow of foreign capital back to the domestic US federal government treasury market, the prices of US treasuries would have fallen even much more, and the overall US treasury yield curve would have risen even much more, than what we're observing right now.
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  Today, the US Fed's persistent interest-rate hiking means that it's now safest for the world's risk-averse investors to park their surplus savings or funds into the US commercial banks and the US money market funds, because today's US-treasury-buying means a persistent non-trivial loss of market value during the ongoing interest-rate-hiking cycle.
  Also, the US MMFs have been parking their excess funds into the US Fed's recent newly-installed O/N RRR standing facility, which is the floor of the US-Fed-controlled interest-rate corridor, earning very safe interest rate which, like the commercial banks' IOR (the ceiling of the interest-rate corridor), is also becoming higher and higher during the Fed's ongoing interest-rate-hiking cycle, without subjecting their savings principal to any market risk.
  In other words, both the highly-regulated US commercial banks and the US Fed's recent newly-installed O/N RRR standing facility have replaced her traditional federal government treasury market as the world's safest asset refuge for the global safety-seeking savers during bad times.
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  Since
  (i) a very damaging war has been raging in the European Continent,
  (ii) a similarly sophisticated Euro-denominated EU bond market is still missing,
  (iii) the EU's interest-rate-hiking cycle has been less ambitious than that of the US Fed, and
  (iv) the EU's cost-push inflation as a result of the energy crisis in Europe has been much stronger than that in the US,
  the Euro has therefore fallen lately to even below parity with the US dollar.
  And hence the recent strength of the US dollar relative to the Euro and most other foreign currencies (except for Russia's ruble).
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  - vic lai Sep 22, 2022
    
    An old sick person staying in a bed in a hospital can never go out to the street to participate in the street riot there.
    Similarly, the massive amount of US dollars staying in both the US commercial banks' deposit accounts and the US Fed's O/N RRR facility can't go out to the US Main Street to bid up the US's real-economy CPI-inflation rate there either.
    That's why, even before the introduction of the US Fed's RRR facility, the US Fed's first 3 rounds of QEs since the GFC of 2007-09 had all failed to bid up massively the country's real-economy CPI-inflation rate in the years after the GFC and before the break-out of the pandemic in early 2020.
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    But the US federal government's well-intentioned massive new government deficit spending to cope with the aftermath of the pandemic in the country, which has mostly been financed overtly by the US Fed's 4th round of MMT-like money-printing QE, has instead caused the ongoing runaway inflation in the US, since too much money (measured by M1 or M2) has been chasing too few goods and services in the Main Street, not to mention the same and earlier phenomenon in the financial asset market (like the stock, housing and bitcoin markets) of the US virtual economy.
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    The scarcity of the goods and services in the Main Street, and hence the runaway inflation in the US, has also been aggravated by the pandemic's lockdowns, global supply-chain disruptions, and sudden big jump in energy and food prices as a result of the Ukraine War, but all these supposedly crucial supply-side factors have just raised the relative prices of the affected goods and services (and people's inflation expectation) but will never cause a persistent rise in the general price level of the country.
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    I'm really surprised by so many misleading inflation explanations recently put forward by even highly-sophisticated economists or commentators that keep arguing wrongly that Milton Friedman's QTM (Quantity theory of Money, MV = PQ) explanation of inflation (too much money chasing too few goods and services) no longer works today.
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    - vic lai Sep 22, 2022
      
      Note that the US's deliberate strategy of prolonging the ongoing Ukraine War in Europe will attract a considerable part of the EU's virtual-economy financial capital to go to the US, but
      (i) most of the EU's real-economy-related new foreign direct investments (FDIs), and
      (ii) her heavy-energy-consuming old manufacturing factories which want to migrate to cheaper-energy countries,
      will not be attracted to the US, simply because the average production cost in the US is still too high relative to most other countries, as shown by the recent investment of Germany's BASF in China's Canton Province and that of Volkswagen also in China producing electrified vehicles in the coming years.
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      Which means, most of the foreign capital that has been attracted to the US accompanying the current cycle of strengthening US-dollar DXY could have tempered the quickly rising interest costs of borrowing money in today's US macroeconomy, but the already highly-financialized US economy may, as before, once again fail to use the ample amount of inflowing foreign capital to help finance the country's real-economy high-technology investments or sorely-needed infrastructure constructions or renovations in the Main Street.
      Not even the ample incoming foreign capital can prevent the US Fed's coming hawkish interest-rate-hiking policy from eventually popping the everything asset bubble in the US's virtual economy, and so today's strong US dollar that most people still trust is now no longer as beneficial to the whole US economy as in the good old days.
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