Yeah, mostly just intermittantly documenting the USD demise from world reserve currency to wallpaper.
Two meaningful questions of the day [re current USD uptrend]: Why; and How Long?
As to why, I believe it is due to positive interest rate differentials (vs ECB) and an unwinding carry trade overriding the negative record trade imbalances, on top of continued mercantilism of our trading partners providing a base support.
As to how long, these are short term corrective trends (4-8 months) to the USD long term devaluation.
Long term, the trade balance will continue to deteriorate as the 'critical mass' of our productive capital has been off-shored and we have little to export any more at even falling USD prices. The critical mass is gone in that foreign universities are now attracting the best & brightest, innovation and startups are increasingly in India, China, Japan, S. Korea, and job growth is in those countries. Nor do we have anymore the capital to invest in modern plants & equipment (that having been spent in countries where labor is cheaper) nor will the wages of the US worker/resident grow to support more consumption. Global labor arbitrage will hold wages in check, global excess capacity will hold pricing-power in check, but inflation will grow as liquidity growth outstrips production.
US corps will continue to look good on paper as their consolidated balance sheets reflect the cost cutting of moving production offshore and their international sales benefit from increasingly favorable forex treatment even though the profits are not repatriated into USD.
The only tool the Fed has is its printing press, hence every problem will be cured with increased liquidity. At some point our 'trading partners' will opt for the pain of reduced exports to the US and suspending further loans to the US (recycling USD profits into Treasuries) over the pain of increasingly worthless USD-denominated reserves & profits which impairs their import purchasing power for domestic consumption and as well as production for export to other (non-USD denominated) partners.
It was sourcery who maintains (still I believe) a deflationary debt collapse, not I. I anticipate global hyperinflation. When debt is 'liquidated by bankruptcy, default, or repudiation' the creditors balance sheet is impacted, but the money supply is unchanged. And while bankrupt borrowers/lenders won't be borrowing/lending more mponey into existence under our Fractional Reserve Banking system, the government has been and will continue to be the borrower of last resort and the Fed will be the lender of last resort - they make a great team and Greenspan their inestimable coach calling the plays.
Levels of debt in excess of amounts which can be serviced from current income result in deflation. You avoid deflation by either getting rid of the debt or by increasing income. The inflation answer cannot work unless it can be accomplished in a process which increases income. Not only is that not happening now, it is difficult to come up with a hypothetical state of affairs in which increased liquidity provided through the bank fractional reserve process can result in increased income (in the real estate market but there is some finite limit there which I believe has been reached; maybe some other limited sector asset based areas for limited periods of time; but none of that is sustainable to cause a real expansion of income).
The interest rate differential explanation for the bounce in the dollar seems to be the conventional view--and may be correct. Thing is the result has come from a pretty small difference in a very short period of time.
How does unwinding the carry trade cause the dollar to go up against the Euro?
As to the long term trade deficit issue, if the domestic economy continues to deteriorate, US customers will reduce offshore purchases and the offshore economies will also contract. Since US consumption is the primary market, the offshore economies will suffer more from contraction in the US than the domestic economy does.
I see the real underlying dollar weakness emanating from long term lack of current liquidity flow to pay market interest rates.
I don't think that's right. The multiplier effect of fractional reserve banking goes into reverse.