A Friend Asks "Is The Fed Trying To Destroy The US Dollar?"

Global 10-year Government Bond Yields

Purposeful Currency Debasement

The Powell Fed wants 2% inflation over time and has committed to let inflation run over 2% to make up for past undershoots.

Given that Fed-sponsored inflation is purposeful debasement, the answer to my friend's question is "of course"

What About the Competition?

The Fed has competition. Every major central bank wants the same thing. 

One of the ways central banks sponsor inflation is by holding interest rates low. 

In addition to sponsoring inflation slowly, the more immediate impact of low-interest rates is economic bubbles.

Why is the US Dollar So Strong?

Q: If the Fed wants to destroy the dollar, why is it so strong?
A: Look at interest rates. 

Other central banks are trying as hard or harder than the Fed. 

Note: My chart from a St. Louis Fed data download shows month-end values. The inset is as of  2021-05-21.

Greece so distorted the chart with yields that approached 30% I had to remove it from the display. 

Relatively Lofty Yield

What a hoot! 

Quote of the day in weekend FT, “Germany’s 10 yr yield was a relatively lofty minus .12% yesterday.” A new definition of ‘lofty.’

Competitive Debasement Competition 

The competitive currency debasement competition is intense. 

The Fed has help though, much more so than the EU. 

Three rounds of fiscal stimulus, one under Trump and two under Biden, has the Fed has inflation headed the right way (assuming of course you like your money to buy less).

Fed Sponsored Speculation

The real interest rate is -4.09%. Adjusted for housing prices, the real interest rate is even more negative.

Real Interest Rates 2021-04

Despite, year-over-year inflation a reported 4.2%, the Fed has pegged short-term rates at 0.07%. 

Adjusted for housing prices, real interest rates are even more negative.

For details, please see Fed Sponsored Speculation: Real Interest Rates Are -4.1 Percent, Lowest Since 1980

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