Dollars Are Flying Out Of Country

Money flows are gaining attention now.

Chelsey Dulaney cites the following data in the Wall Street Journal: "about 300 billion Euros, equivalent to some $331 billion, has poured back into Europe since last June, mostly into European shares, and the flows could ultimately total about 2 trillion euros."

This flow will contribute to a further decline in the value of the U.S. dollar.

"Hedge-fund managers have been adding to bets against the dollar, which rose to around $12.2 billion as of April 25."

This flow is coming from people concerned with the sanctions coming from the U.S. affiliation with Ukraine in the battle against Russia.

But the flow is also coming from the fact that the central banks of Europe and England are raising policy rates to compete against the interest rates the Federal Reserve is achieving in the U.S.

And, "investors are betting the Fed will pivot to lowering borrowing costs by at least a quarter point by the end of the year."

"Meanwhile, market pricing suggests that investors expect the European Central Bank and the Bank of England to raise their key rates by more than half a percentage point by year-end."

The headline to Ms. Dulaney's article is

"The Air Has Come Out of the Dollar."

What Needs To Be Done

It is ironic that in the same issue of the Wall Street Journal there is an article that argues that "Prosperity Requires a Stable Dollar."

The argument in the article is that the United States needs to focus more on achieving a strong, stable value for the U.S. dollar and should not fool around with other goals or targets that do not contribute directly to the strength of the U. S. economy.

The article proceed to describe what has been happened in history and the fact that when the price of the U.S. dollar is unstable, the U.S. economy does not perform very well at all. And, turmoil occurs.

What needs to be done to achieve a more stable value to the U.S. dollar and to achieve more stability in the economy is to focus more upon the value of the dollar and have the government work toward obtaining this greater stability.

This is exactly the direction my writing has taken.

I started this current discussion in my April 25 post. I continued it for several days.

Although the Federal Reserve cannot attain an absolutely stable value for the U.S. dollar, it can attain more stability than it has in recent years.

Note that complete stability can be sought after by going with a fixed exchange rate, but history has shown that "fixed" exchange rates end up being relatively volatile as well because of excessive government policies.

That is not what we are looking for.

What we are looking for is a government that does not jump from economic policies that attempt to highly stimulate the economy to achieve higher rates of employment to economic policies that generate inflationary pressures that must be removed.

What was shown in the articles just posted is that the U.S. economic policies will stimulate the economy and end up creating an inflationary environment that has to be followed by economic policies that bring inflation under control.

Floating exchange rates seem to result in more stability with fewer major rate-setting disturbances than do the fixed-rate schemes.

There still is volatility, but because the markets continue to work, the changes that occur are less disruptive and more able to move in a direction that reverses the turmoil.

So, the aim is to achieve greater stability of the currency price, without completely trying to block all movement.

So, the effort to manage the value of the country's currency should become a more prominent part of the government's policy portfolio.

That is, the federal government and the Federal Reserve should act to preserve the U.S. dollar as a stable financial unit to help prevent financial crises and restore robust economic growth.

Current Dilemma

Where are we now?

The second article referred to above from the Wall Street Journal agrees with me that the actions of the Federal Reserve to fight the spread of the Covid-19 pandemic created an asset bubble.

"In February 2021, with the consumer-price index still below but approaching the Fed's 2 percent target, the dollar's real value returned to its three-year stretch of pre-Covid relative calm. This was a sign to halt and even reverse asset purchases, normalize rates, and stabilize the dollar. Instead, the Fed bought an additional $2 trillion of assets, which provided fuel for speculative securities and allowed CPI to race to a peak of 9.1 percent. The Fed waited for late-cycle labor-market indicators, including wage growth, then tightened into an already slowing economy...."

This response was similar to what was done in earlier situations.

Now, the world hangs on every word uttered by the Federal Reserve.

The issue: "What is the Federal Reserve going to destabilize next?"

And, investors want to know the answer to this. Businesses want to know the answer to this. We want to know the answer to this.

And, as stated above, money flows out of the United States.

Furthermore, money continues to flow away from the U.S. dollar in response to the sanctions the U.S. and others have imposed.

Someone must step up and support a stable dollar...and they must step up soon,