Why the dollar is more robust than it looks

A woman counts a bundle of U.S. one-hundred dollar bills in Indonesia. Foto: Dimas Ardian/Bloomberg

It’s about as hard right now to find anyone with a kind word to say about the greenback as it is to find someone with a nasty word about equities. There is much talk of yawning U.S. budget and current-account deficits. Extreme fiscal policy has been added to extreme monetary policy.

Reasonable people might wonder about inflation and vertiginous asset prices, but reasonableness is seemingly not in high demand in Washington. The Treasury and the Federal Reserve seem to want to print as many dollars as they can. Inflation is going up and the dollar down. Real yields, as reflected in the yields on Treasury Inflation-Protected Securities (TIPS), have fallen ever lower over the last year as expected inflation has risen. The yield on five-year TIPS recently touched a little less than -3%, a record low. Thus has the trade-weighted dollar fallen by about 12% since its high in the spring last year, and many think it has a lot further to fall...

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