The Value of the $US: 1973 – 2012

The $US is much discussed lately, both as an economic and as a political topic.  The WSJ, for one, has been focused on the Fed’s QE3 prospects and ForEx for some time.  Weaker $US.  Stronger $US.  Versus the €EU and the ¥Japan.  It’s interesting as speculation in the $US4 Trillion-a-day interchange markets.

The real discussion, however, should be about the trade-weighted value of the  $US; the $US that private firms actually use when they import and export goods and services.  In that regard this graph from the St. Louis Federal Reserve Bank says all anyone really needs to know.

If you draw a simple line in your mind’s eye connecting the initial point in March 1973, shortly after Bretton Woods failed, with the 2012 endpoint, it’s obvious the $US has been falling in value against a basket of the world’s other major currencies persistently for the entire 39 year period.  The spikes up are just interludes in the long, slow decline in value.

 
The 1980-85 spike tracks the resurgence of the American economy as the near-death experience of the 1970′s Nixon-Ford-Carter experiment with European socialism was reversed; as inflation collapsed; the so-called “Reagan Revival”.  But it was short-lived, was it not?  And the trendline was rejoined in less than 3 years!
 
The 1995-2001 spike up was the euphoria of the technology boom (and bubble) in the economy coupled with three foreign currency crises in succession: the Asian currency crisis, the Russian default, and the European’s multiple problems launching the Euro in 1999 and 2000.
 
Other than those two runs, the $US has been in a steady-state decline since the bear market of 1973-74.
 
So I’d like to offer a question to be put to Mitt Romney and Barack Obama, a question to replace all the useless MSM “gotcha” blather we usually hear in a debate:
 
Gentlemen, you each have 15 minutes:  What do your think has caused this long decline in the trade-weighted value of the $US, and what should we do to restore the strength of the $US in the global trading economy?
 
I offer this question to you, Readers, as well.  I think the answer to this question has a great deal to do with the debt-trapped condition in which we now find ourselves.  And a very great deal to do with finding our way out again.

 

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