Looking at the scale of a few years, the dollar has been insanely overvalued post-COVID.
Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.
Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.
The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.
The points avoiding the elephant in the room are basically deliberate, in support of the elephant. They think the elephant is some good thing that is going to destroy the woke, or inflation, or the immigrants, or whatever the hypocritical bogeyman is next week. But it is certainly not poised to destroy them, because they are the true patriotic Americans, don't you know. It is only everything else about this country that is wrong. And as soon as the elephant is done wrecking everything that is bad, their own true brilliance will be allowed to blossom. Or at least so they seem to think.
The US Market is definitely more optimized more than say European, at the sacrifice of the common good of the people and to the advancement of broligarchs. Trump is doing is best to kill even that (I think it's not his intention, he's just not good with money), via tariffs and crazy economic policies and promoting even bigger deficits than we had during covid. I'm not sure how much longer it can fly high though.
Economic instability and uncertainty. How high it is compared to other markets is debatable it has increased significantly this year due obvious reasons, though
> the dollar has been insanely overvalued post-COVID.
That's an odd way of saying the US doubled it's federal budget from $3T to $6T in response to COVID and has now ensconced this pork further into law. Under a "republican" administration, no less.
> The dollar losing its value is a return to the pre-covid norm.
Which is to say that even $3T contained an unjustified amount of debt spending just not as obscene as it is today.
Are you under the impression that this is surprising? Republicans are consistently the ones spending more when they are in power. It's time to dispel this myth that they are fiscally "conservative", they have presented more unbalanced/defficitary budgets than Democrats and the latter in recent memories are the only ones who managed to present budget with surpluses, under Clinton.
It's fairly obvious the reason he put it in quotes was because the Republicans and conservative movements claim to be all about "fiscal prudence and discipline", when in reality they're the ones responsible for the ballooning deficit.
Corruption has been compounding. Malicious business interests don't actually care which party has power. Just that they have access. It's telling that you have to reach back 30 years to find an example where the budget was balanced for one single year.
Right, because the guy after Clinton decided to cut taxes and start multiple wars that would last decades. You can do better than a gut "both sides" reaction.
Donald Trump has stated that he wants to weaken the dollar. It seems that he is succeeding.
My guess is that he wants to make it more attractive when it comes time to refinance the large portion of American long-term debt. He also wants to keep the interest rates low for the same reason.
My questions is: What is causing the actual slide? The concrete mechanics and motivations that are causing people to sell USD.
Devaluing the dollar is 100% the goal. It's literally noted as a key component in what the people running US trade policy now said they wanted to do, before joining government.
It has the side effect of boosting nominal investment value (even if real value stays flat or decreases), maintaining political support from people who can't do math. The numbers continue to look good, but outcomes worsen.
There are two flies in this ointment: international capital response and inflation.
The latter is why Trump has been spending political capital on demonizing the Fed and Powell. The house of cards collapses if actual inflation bites and reveals the game.
As to the former, it's tough to look at the situation and see US debt / equities as attractive as they once were:
1. Unsustainable US budget deficits
2. Political threats against the US central bank
3. Tariffs
4. Decreased immigration and worsening demographics
These do not explain how DXY[1] had been rallying up and started falling at the end of September 2022. At that time, if you don't recall, Trump was facing prison time and the US government was in the reliable hands of the most popular president ever with his cabinet of brilliant minds.
Not when you get to the point where your currency is so devalued that importing raw materials necessary for those exports becomes expensive, and basics like food and fuel become unaffordable for locals, as is the case in Japan.
A balance is necessary, and things have been off balance recently.
> Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point
That's what inflation does.
People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.
And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.
So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).
Lower than their 2024 peak, but still much higher than before 2022 where for a long period it was at 0% or even negative interest (apparently, I don't know much about these things). It's at 2% or 2.4% at the moment, last time it was around that was in 2008. See https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
But I'm no economist and don't know what these numbers mean or what the consequences are.
Which would mean that the Euro would depreciate significantly against the dollar under normal circumstances.
Yet the Euro increased by > 10% despite the ECB cutting the rates quite significantly. Imagine how low the dollar would go if the Fed listened to Trump and cut to 1%..
It's 6500 billion dollars, generally referred to as "trillions".
A vote for Trump, as it turns out, was a vote to increase US national debt by double what anyone increased it by before (which was also Trump, so anyone saying they "didn't see this coming" ...)
No, its just code that the audience recognizes: "fiscally responsible" in US politics means "opposed to social programs", in the same way that "states rights" means "supporting racial discrimination". People often criticize the people embracing those views not delivering on the things that the literal meaning of the words deliver, but the target audience for the message understands what they mean perfectly well, which is why no argument, no matter how well-delivered and well-supported by evidence, directed at the failure to deliver on the literal meaning ever budges support. It's not some kind of magically-strong propaganda that clouds people's minds, it's a message whose meaning is well-understood and arguments directed at the literal meaning are simply misdirected.
It's more than generational at this point, and it's wildly successful from a propaganda standpoint. They're kind of banking on none of their constituents bothering to read the budget bills they pass. Which turns out to be a very good bet when your party is also ideologically opposed to education.
Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced. America is consuming too much, and the world is saving too much. So yes, your living standards do need to go down for the sake of the greater global macroeconomic stability.
Contrary to what xkcd or NYT might tell you, actual economic institutions like the IMF and the World Bank are coigzant of the issues caused by the status quo and largely view the Trumpian diagnosis, if not the horrid execution, as correct.
The US sells billions of dollars of digital services to the rest of the world each year. Did Trump and co include netflix, aws, azure, etc etc in their "unbalanced trade"?
EU-US goods and services trade is balanced: the difference between EU exports to the US and US exports to the EU stood at €48 billion in 2023; the equivalent of just 3% of the total trade between the EU and the US.
Total bilateral trade in goods between the EU and the US reached €851 billion in 2023. The EU exported €503 billion of goods to the US market, while importing €347 billion; this resulted in a goods trade surplus of €157 billion for the EU.
Total bilateral trade in services between the EU and the US was worth €746 billion in 2023. The EU exported €319 billion of services to the US, while importing €427 billion from the US; this resulted in a services trade deficit of €109 billion for the EU.
So they are running a deficit; Nonetheless, bilateral balances don't tell much without understanding the larger context of the total balances of each country and how proportionate they are relative to the global sum.
The matter of fact is that nearly every major economy is running a surplus, it is really on the USA and some countries like UK that is holding up the deficit side. Whether you think this arrangement is good or not is a matter of debate, but many economists would agree it's not good or sustainable, nor should it be occurring in the first place. Surplus countries should have strengthening currencies, deficit countries weakening ones under natural conditions. This is not happening due to very specific policies that surplus nations have imposed, at the burden of deficit nations.
> Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced.
No central bankers in the world ever said that including Powell. That’s Trump policy and Trump only.
They have actually, the debate about persistent imbalances have been going on since the 2000s and Bessnet's arguments are simply the extension of Bernanke's prior hypotheses and ultimately Keynes diagnosis on global macroeconomics stability.
The first one throws an intentionally vague imbalance and aims squarely at Chine state aids distortion. It also goes at length about how tariffs are seen as terrible by everyone and how it’s all about a level playing field and not about rebalancing trade balances.
The second is strictly about the US and explains that trade inbalance has more to do with capital flows that actual trade of goods and how the extreme situation in the US might need moderation. Its conclusion is that the trade balance will fix itself if the US both fixes its budget issues and help foreign countries to actually use their excess savings locally. That’s pretty far from thinking the balance of trade needs to be rebalanced.
This is spot on and cuts both ways. Much of the Japanese market's recent "performance" in US media is actually just yen weakness against the dollar. Strip out currency effects and the story looks very different. Same with European markets "performance" - we're often seeing monetary policy divergence rather than genuine outperformance in foreign markets.
Always check both local currency and USD returns when evaluating international markets.
MSCI Europe is up about 8-9% in euros so far this year—roughly the same as the S&P 500 in dollars.
But the euro itself has climbed ~10% YTD vs the dollar (≈ $1.02 → $1.12-1.18). So you get an ~18% gain if you invest in MSCI Europe in dollars.
Europe hasn't "beaten" US stocks because its companies suddenly out-executed; most of the gap is the stronger euro.
Not that it matters who’s "winning." My gripe is with US headlines that shout "Japan stocks are on fire" or "Europe stocks are on fire," when what’s really happening is that global markets are rising together and currency swings make one region look better than another.
Not in Australia. Our dollar has taken a beating too. I guess digging holes and selling property to each other at ever higher prices isn’t that interesting to the rest of the economic world.
Australia printed a lot more money relatively than the US from COVID-19 until now, largely to capitalize on a booming commodities sector. A factor that led to some do weakness.
But I think any weakness is temporary. With a stable government and abundant natural resources that will be even more sought-after in an AI-driven world and largely insulated from automation Australia’s long-term prospects look strong.
Here's how the US Dollar Index has performed over the last ~30 years. The swing looks pretty typical to me. If it drops another 10% (as the article says Morgan Stanley thinks it might) then I could see this event as an outlier. For now, I find it interesting but not especially concerning. There's pros and cons to having stronger/weaker currency. I think it's probably worse to have a volatile currency than an especially strong or weak one?
As a Canuck who has seen these swings for decades of his life, with both our currency and the US dollar both contributing to this, I see nothing unusual in the current trends.
I take it that the "on track" is determined by extending a current downtrend as if it will continue precisely the same, for the next 6 months, which seems unlikely.
I get that with the recent passage of this US bill, people want to pile on. I can assure you, that Canadians have no love of the current administration. But this is another click-baitish thing being done to us all, feeding on people's upset, the time of year it is, the US holiday, and more.
The inflation of 2021-24 was a biblical disaster for the working class, and it's nowhere near as bad now. I'd say that makes 2025 a marked improvement from the economic disaster of the last 4 years, and which was backed up in every political poll (economy was issue 1).
The monetary inflation dump in Trump's previous term was early 2020, which then took time to work through asset prices and into consumer prices. So yes the next few years are going to be worse, as the effects of the terrible policies really set in. And unlike last time, we won't have leadership at the helm who might even try pulling up until 2027. And that's assuming enough Americans get their heads on straight to vote out the congress currently rubber stamping this wanton destruction.
Approval poll numbers seem to indicate a plurality of US voters agree with much of what the current government is implementing and for the first time in a very long period the majority of US voters seems to think the country is on the right track. You may not like what Trump and his crew are doing but most people did not like what your preferred candidates were doing and planning to do. Given these numbers I'd say "your democracy" (which is a constitutional republic but I'll just borrow some of the oft-heard rhetoric from the "democratic" party) seems to be functioning quite well and certainly a lot better than under the previous regime when approval numbers were abysmal.
Nice try, but the comment you're replying to didn't use the word democracy at all. Maybe it would help to read it again.
Just because a group of people approve of things happening doesn't make it a good year. My estranged family does and they don't have a grasp on the notion of cause and effect nor do they have an acceptable level of reading comprehension- I do not value their opinion in the slightest l.
Approval ratings are just measures of partisanship. Ideally it drops to zero. The fact that it was nearly 40% for a leader experiencing dementia-like symptoms confirmed this with political theoreticians.
Biden had a team around him to work with, plus the general separation of responsibilities of independent agencies. So nominal "Biden" was doing just fine regardless of the one man. This time we're getting the full dementia experience from a manic mad king who has already driven away anyone that might tell him no.
DXY index - often what these news reports use when talking about the dollars decline is ~97 today—still stronger than the ~90 it finished 2014 at and almost the same as 2018.
Ask yourself, did you panic during these years? Mostly no. These were pretty good years.
Volatility is normal - the main point is the index was lower than it is today (meaning we had a weaker dollar than this blog post is referring to as problematic) and the result wasn’t chaos - the economy grew.
Cheaper dollar boosts US exports. Makes imports more expensive even before tarrifs. Which situationally, some industrial sectors will want. The exporting ones. The ones reliant on imports, less such.
The US isn't self sufficient in food. Food imports are going to get more expensive.
Countries may be unwilling to trade with an increasingly belligerent US that slaps everyone with tariffs. In fact, many will just slap the US with tariffs and other barriers of their own.
> Which situationally, some industrial sectors will want
No major US export sector operates exclusively as an exporter without any exposure to imports or global supply chains. Even the largest US exporting industries (oil and gas extraction, civilian aircraft and parts, and pharmaceuticals) rely in varying degrees on imported inputs, components, or capital equipment... which companies are you talking about?
I was talking about oil and gas mainly. I'm unsure if US steel is competitive with any other producer, it's probably ring-fenced markets only. I hadn't thought about their exposure to imports on the production side, your point is good.
US doesn't just make weaponry but let's roll with that. You said there are two major markets now, I assume you mean Europe, that is the most wealthy continent, and Middle East one of the most awash with cash regions in the world.
You may be tempted to assume that only active participants in wars buy weapons, but that has never been the case. And especially now, you have many countries trying to restock and prepare.
Guns and missiles don't even make it into the top five U.S. export categories. The largest good exported is civilian aircraft parts, although it pales in comparison to business services exported (>$200B) and financial services (~$175B).
A lot of foreign customers are rethinking their dependency on American services, too. Not out of some ideology, just hedging against whimsical policies. Just a year ago, such discussions would have been idle crackpot watercooler talk, now it's a normal boardroom subject. The shift will take time, but that's it's even on the agenda is incredible.
Rheinmetall shares are doing well. They're in all kinds of JV worldwide. It's not Basil Zharoff spectacular but they're healthy. The world wants the blessed Mary of the javelin, and anyone who makes NATO 155mm has a market.
People who bought the F35 have mixed views. Awesome tech. Is there a remote off switch?
British arms factories are salivating at the prospect of NATO and EU spend. The French want to ring-fence them out but almost any complex materiel is made across Europe in the wider sense. Risk management drove there, I think France will stop being silly once their factories supply books are healthy.
I think that’s the goal. Trump wants to devalue the dollar to make imports more expensive and exports cheaper. It’s inline with his tarriff policy to reduce the balance of trade deficit.
It’s just that countries don’t admit when they are devaluing currency, because devaluing currency could cause a loss in market confidence, devaluing it could cause a tit for tat currency war, or it could result in speculative attacks against the currency.
But just to emphasize my point, the dollars decline is intentional.
It really says something when the instability of the dollar is (relatively) as bad as when Nixon took us off the Gold Standard in 1973. Trump's policies certainly have caused a large amount of instability.
It's easy to blame an individual administration but the reality is pure fiat currencies will always end in this way. When was the last time the US had a balanced budget? Clinton? If you don't have a constraint on printing new currency you will always print more.
A good example I heard today was this. Imagine if you have a legit money printer. Show me the most pure human and eventually they will hit that button and print new money. That's what we've been doing for a long time now to finance all the wars and bailouts.
Oh we can happily blame every administration that did this. It may be the natural conclusion of this behavior but that doesn't mean we need to continually rush head first into trouble. The current administration absolutely needs to shoulder more scrutiny than the past ones because they are actively making decisions. They don't get a pass just because the others did it too.
It isn't just one administration. There's quite a bit of consistency over which administrations are "good" for the economy and the people, and which are "bad".
I can't believe people still put faith in fiat. It is controlled by the government and the sole purpose is to have as much control over the people as possible. Monero is the answer for it. You get full control, privacy and anonymity. The ultimate financial prison break. It saves you from the prison of taxation imposed by evil and nasty governments of the world.
Trump and Bessent announced in the past week or so, that instead of terming out the debt, they'll ramp up refunding using T-Bills (max 52w duration) until Fed Chair Powell's term ends in 9 months. If they actually follow through on that (I suspect they just try to jawbone Powell), it could weaken the dollar even more.
Don’t they want a weaker dollar to bring manufacturing back to the US? If manufacturing jobs were up while service sector hiring fell, would that be proof that they are succeeding? Not good for the middle class, perhaps intentionally, but if you’re homeless and need a low skill manufacturing job you’re prospects are finally looking up.
yeah but they're still >50% off SFBA salaries. SFBA comp for a sr dev can easily be $200k+ (and can go higher, lots of anecdotes on here about $350k+ salaries at BigtechCos), for an EU dev scratching 90k euro is considered "good". Devaluing the dollar by 10% and increasing the price of EU salaries by 10% doesn't really change the picture.
"Food for thought: The year that came closest to 2025 in dollar depreciation was 1973, and the result was then-President Richard Nixon taking the US off the gold standard. “Big moves in the dollar tend to create moments of instability,” Morgan Stanley’s Wilson said."
Maybe its just because I grew up on rhetoric of population crisis and malthusian collapse but shrinking population is one issue I genuinely can't bring myself to care about.
Most Americans don't need cheaper iPhones and Amazon/Taobao slop, they need higher wages, cheaper food, cheaper housing. A cheap dollar moves industry back to America and this is a win for the average American. A weakening dollar is basically a gigantic macroeconomic signal to move investments back into the American economy instead of pushing them away.
It's not just the value of the USD but its usage in trade and as a reserve currency in central banks is going down. Europeans are fantasizing about Euro taking over the reserve currency status but it doesn't appear to be happening, instead gold, crypto and other currencies appear to gain ground.
Looking at the scale of a few years, the dollar has been insanely overvalued post-COVID.
Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.
Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.
The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.
I think the bigger problem is the reason why people are pulling back their money from US markets.
It's kind of jaw dropping to see people here continually avoid the elephant in the room, same thing in discussions about Tesla sales.
The points avoiding the elephant in the room are basically deliberate, in support of the elephant. They think the elephant is some good thing that is going to destroy the woke, or inflation, or the immigrants, or whatever the hypocritical bogeyman is next week. But it is certainly not poised to destroy them, because they are the true patriotic Americans, don't you know. It is only everything else about this country that is wrong. And as soon as the elephant is done wrecking everything that is bad, their own true brilliance will be allowed to blossom. Or at least so they seem to think.
US markets have been flying high since COVID. Much more than other countries' markets. Why not take profit when US markets + dollar is at a high?
The US Market is definitely more optimized more than say European, at the sacrifice of the common good of the people and to the advancement of broligarchs. Trump is doing is best to kill even that (I think it's not his intention, he's just not good with money), via tariffs and crazy economic policies and promoting even bigger deficits than we had during covid. I'm not sure how much longer it can fly high though.
Why are you ignoring the real reason?
Because emotions are terrible investment strategies
Policy is not emotional. There is such a thing as good policy, and bad policy. And, ironically, failing to call obviously bad policy bad is emotional.
And what do you think the real reason is?
Economic instability and uncertainty. How high it is compared to other markets is debatable it has increased significantly this year due obvious reasons, though
S&P500 literally at an all time high.
Even I wasn't paying attention for a few days (just flew to Canada from Europe).
So my theory of profit taking seems right, back to fresh highs.
> S&P500 literally at an all time high.
It still has 10% to go to surpass its previous peak if measured in euros. Which is kind of the point.
Currency depreciation is usually good for the local stock market, that’s not too surprising.
Since Trump’s inauguration even the STOXX 600 managed to outperform the S&P 500 which is something that almost never happened.
> the dollar has been insanely overvalued post-COVID.
That's an odd way of saying the US doubled it's federal budget from $3T to $6T in response to COVID and has now ensconced this pork further into law. Under a "republican" administration, no less.
> The dollar losing its value is a return to the pre-covid norm.
Which is to say that even $3T contained an unjustified amount of debt spending just not as obscene as it is today.
> It's a high that can't last forever.
That's the "big beautiful bill" for ya.
> Under a "republican" administration, no less.
Are you under the impression that this is surprising? Republicans are consistently the ones spending more when they are in power. It's time to dispel this myth that they are fiscally "conservative", they have presented more unbalanced/defficitary budgets than Democrats and the latter in recent memories are the only ones who managed to present budget with surpluses, under Clinton.
It is a myth, there are only a few Republicans that organize around the concept of spending less.
Both sides of the gerontocracy are happy to improve their lives while not planting seeds for the future.
[flagged]
Yes, and then took those cuts and blew them out of the water with irresponsible spending in the form of "tax reform".
Nobody is going to see any benefits from those Medicaid cuts. We're much, much further in the hole then we were before.
It's an irony, not ?
Like a fly in my Chardonnay.
It's fairly obvious the reason he put it in quotes was because the Republicans and conservative movements claim to be all about "fiscal prudence and discipline", when in reality they're the ones responsible for the ballooning deficit.
It wasn't at all obvious if it was ironically poking fun at that claim or that they genuinely believed it.
Corruption has been compounding. Malicious business interests don't actually care which party has power. Just that they have access. It's telling that you have to reach back 30 years to find an example where the budget was balanced for one single year.
Right, because the guy after Clinton decided to cut taxes and start multiple wars that would last decades. You can do better than a gut "both sides" reaction.
If a dollar used to equal 100 yen, and now the dollar is worth 162 yen, isn’t that moving opposite to the stated direction?
The yen has other reasons to be weak though, namely that Japan barely increased interest rates as compared to the US.
Donald Trump has stated that he wants to weaken the dollar. It seems that he is succeeding.
My guess is that he wants to make it more attractive when it comes time to refinance the large portion of American long-term debt. He also wants to keep the interest rates low for the same reason.
My questions is: What is causing the actual slide? The concrete mechanics and motivations that are causing people to sell USD.
Devaluing the dollar is 100% the goal. It's literally noted as a key component in what the people running US trade policy now said they wanted to do, before joining government.
It has the side effect of boosting nominal investment value (even if real value stays flat or decreases), maintaining political support from people who can't do math. The numbers continue to look good, but outcomes worsen.
There are two flies in this ointment: international capital response and inflation.
The latter is why Trump has been spending political capital on demonizing the Fed and Powell. The house of cards collapses if actual inflation bites and reveals the game.
As to the former, it's tough to look at the situation and see US debt / equities as attractive as they once were:
1. Unsustainable US budget deficits
2. Political threats against the US central bank
3. Tariffs
4. Decreased immigration and worsening demographics
These do not explain how DXY[1] had been rallying up and started falling at the end of September 2022. At that time, if you don't recall, Trump was facing prison time and the US government was in the reliable hands of the most popular president ever with his cabinet of brilliant minds.
1. https://www.tradingview.com/symbols/TVC-DXY/?timeframe=60M
Or, take a look at measures objectively instead of predeciding whose side you want to be on.
https://finance.yahoo.com/chart/AAAU
>it would mean every country is supporting the US at the cost of devaluing themselves.
That's what they want as export based economies.
Not when you get to the point where your currency is so devalued that importing raw materials necessary for those exports becomes expensive, and basics like food and fuel become unaffordable for locals, as is the case in Japan.
A balance is necessary, and things have been off balance recently.
> Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point
That's what inflation does.
People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.
And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.
So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).
European interest rates are crazy low, that's why.
Lower than their 2024 peak, but still much higher than before 2022 where for a long period it was at 0% or even negative interest (apparently, I don't know much about these things). It's at 2% or 2.4% at the moment, last time it was around that was in 2008. See https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
But I'm no economist and don't know what these numbers mean or what the consequences are.
In general lower interest rates would cause your currency to depreciate.
Which would mean that the Euro would depreciate significantly against the dollar under normal circumstances.
Yet the Euro increased by > 10% despite the ECB cutting the rates quite significantly. Imagine how low the dollar would go if the Fed listened to Trump and cut to 1%..
It seems that no one is prepared to point out the obvious - devaluation of the dollar is a cut in American living standards.
Tariffs and a devaluating currency are a double whammy of inflation on imports.
It will be reflected in overall inflation statistics, and that limits the Fed’s ability to cut rates.
Low derivatives of US gdp per capita growth over the past decade feels like stagnation to the population.
Totally agreed. My only hope is that the evil bastards who willed this to happen bear the suffering more.
They just gave themselves billions in tax cuts, so they'll be comfortable.
It's 6500 billion dollars, generally referred to as "trillions".
A vote for Trump, as it turns out, was a vote to increase US national debt by double what anyone increased it by before (which was also Trump, so anyone saying they "didn't see this coming" ...)
GOP being the "fiscally responsible" party is the best generational propaganda it's honestly impressive
No, its just code that the audience recognizes: "fiscally responsible" in US politics means "opposed to social programs", in the same way that "states rights" means "supporting racial discrimination". People often criticize the people embracing those views not delivering on the things that the literal meaning of the words deliver, but the target audience for the message understands what they mean perfectly well, which is why no argument, no matter how well-delivered and well-supported by evidence, directed at the failure to deliver on the literal meaning ever budges support. It's not some kind of magically-strong propaganda that clouds people's minds, it's a message whose meaning is well-understood and arguments directed at the literal meaning are simply misdirected.
It's more than generational at this point, and it's wildly successful from a propaganda standpoint. They're kind of banking on none of their constituents bothering to read the budget bills they pass. Which turns out to be a very good bet when your party is also ideologically opposed to education.
I don’t think the party is ideologically opposed to education as much as they are opposed to the way it has been implemented the past few decades.
Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced. America is consuming too much, and the world is saving too much. So yes, your living standards do need to go down for the sake of the greater global macroeconomic stability.
Contrary to what xkcd or NYT might tell you, actual economic institutions like the IMF and the World Bank are coigzant of the issues caused by the status quo and largely view the Trumpian diagnosis, if not the horrid execution, as correct.
> the incredibly unbalanced balance of trade
The US sells billions of dollars of digital services to the rest of the world each year. Did Trump and co include netflix, aws, azure, etc etc in their "unbalanced trade"?
The Current Account Deficit includes goods and services.
EU-US goods and services trade is balanced: the difference between EU exports to the US and US exports to the EU stood at €48 billion in 2023; the equivalent of just 3% of the total trade between the EU and the US.
Total bilateral trade in goods between the EU and the US reached €851 billion in 2023. The EU exported €503 billion of goods to the US market, while importing €347 billion; this resulted in a goods trade surplus of €157 billion for the EU.
Total bilateral trade in services between the EU and the US was worth €746 billion in 2023. The EU exported €319 billion of services to the US, while importing €427 billion from the US; this resulted in a services trade deficit of €109 billion for the EU.
source: https://policy.trade.ec.europa.eu/eu-trade-relationships-cou...
So they are running a deficit; Nonetheless, bilateral balances don't tell much without understanding the larger context of the total balances of each country and how proportionate they are relative to the global sum.
The matter of fact is that nearly every major economy is running a surplus, it is really on the USA and some countries like UK that is holding up the deficit side. Whether you think this arrangement is good or not is a matter of debate, but many economists would agree it's not good or sustainable, nor should it be occurring in the first place. Surplus countries should have strengthening currencies, deficit countries weakening ones under natural conditions. This is not happening due to very specific policies that surplus nations have imposed, at the burden of deficit nations.
> Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced.
No central bankers in the world ever said that including Powell. That’s Trump policy and Trump only.
https://www.bloomberg.com/news/articles/2025-05-22/g-7-draft...
https://www.federalreserve.gov/boarddocs/speeches/2005/20050...
They have actually, the debate about persistent imbalances have been going on since the 2000s and Bessnet's arguments are simply the extension of Bernanke's prior hypotheses and ultimately Keynes diagnosis on global macroeconomics stability.
Neither articles are implying that.
The first one throws an intentionally vague imbalance and aims squarely at Chine state aids distortion. It also goes at length about how tariffs are seen as terrible by everyone and how it’s all about a level playing field and not about rebalancing trade balances.
The second is strictly about the US and explains that trade inbalance has more to do with capital flows that actual trade of goods and how the extreme situation in the US might need moderation. Its conclusion is that the trade balance will fix itself if the US both fixes its budget issues and help foreign countries to actually use their excess savings locally. That’s pretty far from thinking the balance of trade needs to be rebalanced.
Even if you own equities?
From outside the US, all the 'stock market gains' have actually been zero or negative because of this. I wonder how long before inflation hits...
This is spot on and cuts both ways. Much of the Japanese market's recent "performance" in US media is actually just yen weakness against the dollar. Strip out currency effects and the story looks very different. Same with European markets "performance" - we're often seeing monetary policy divergence rather than genuine outperformance in foreign markets.
Always check both local currency and USD returns when evaluating international markets.
European markets are doing fine in Euro terms aren’t they?
MSCI Europe is up about 8-9% in euros so far this year—roughly the same as the S&P 500 in dollars.
But the euro itself has climbed ~10% YTD vs the dollar (≈ $1.02 → $1.12-1.18). So you get an ~18% gain if you invest in MSCI Europe in dollars.
Europe hasn't "beaten" US stocks because its companies suddenly out-executed; most of the gap is the stronger euro.
Not that it matters who’s "winning." My gripe is with US headlines that shout "Japan stocks are on fire" or "Europe stocks are on fire," when what’s really happening is that global markets are rising together and currency swings make one region look better than another.
You should evaluate foreign market results based on your domestic currency. Here is the US centric example.
1. You exchange Dollars for Euros
2. You buy a stock in Euros
3. You hold the stock in Euros for a period of time
4. You sell the stock in Euros
5. You exchange your Euros for Dollars.
The difference in the exchange rate in step 1 and 5 can have a very large impact on your total return, often times a larger impact than step 3.
Not in Australia. Our dollar has taken a beating too. I guess digging holes and selling property to each other at ever higher prices isn’t that interesting to the rest of the economic world.
Australia printed a lot more money relatively than the US from COVID-19 until now, largely to capitalize on a booming commodities sector. A factor that led to some do weakness.
But I think any weakness is temporary. With a stable government and abundant natural resources that will be even more sought-after in an AI-driven world and largely insulated from automation Australia’s long-term prospects look strong.
The Hole just got 10 ft deeper!
If that doesn't work, let's try "one part of the population chasing another part into concentration camps!" That'll attract investors.
Every empire starts with free labour. Cheap labour is too expensive.
While there's a lot of truth to that, I think that works better in undeveloped economies, and in the past, than now.
Australia's already tried that one: https://en.wikipedia.org/wiki/Aboriginal_reserve
> I guess digging holes and selling property to each other at ever higher prices isn’t that interesting to the rest of the economic world.
Wow this is the case in most of the Europe too, what a coincidence. Fancy investing in our premium real estate?
Lol, Australia and Canada seem to be very similar in this regard.
Because stock market gains can't keep up with the lose of the dollars value? Assuming that you bought your stocks using Euros or some other currency?
Yeah, that's what they mean. Here's a euro-denominated S&P500 ETF: https://finance.yahoo.com/quote/CSPX.AS/
and a USD denominated one: https://finance.yahoo.com/quote/SPY/
Have a look at the 1 year view. Note the fairly dramatic difference.
If only it were easier to buy etfs that aren’t PFIC’s
https://i.imgur.com/LkclqgV.png
Here's how the US Dollar Index has performed over the last ~30 years. The swing looks pretty typical to me. If it drops another 10% (as the article says Morgan Stanley thinks it might) then I could see this event as an outlier. For now, I find it interesting but not especially concerning. There's pros and cons to having stronger/weaker currency. I think it's probably worse to have a volatile currency than an especially strong or weak one?
As a Canuck who has seen these swings for decades of his life, with both our currency and the US dollar both contributing to this, I see nothing unusual in the current trends.
I take it that the "on track" is determined by extending a current downtrend as if it will continue precisely the same, for the next 6 months, which seems unlikely.
I get that with the recent passage of this US bill, people want to pile on. I can assure you, that Canadians have no love of the current administration. But this is another click-baitish thing being done to us all, feeding on people's upset, the time of year it is, the US holiday, and more.
Ah well.
Strike dollar from the title and it'll still be true...
The inflation of 2021-24 was a biblical disaster for the working class, and it's nowhere near as bad now. I'd say that makes 2025 a marked improvement from the economic disaster of the last 4 years, and which was backed up in every political poll (economy was issue 1).
The monetary inflation dump in Trump's previous term was early 2020, which then took time to work through asset prices and into consumer prices. So yes the next few years are going to be worse, as the effects of the terrible policies really set in. And unlike last time, we won't have leadership at the helm who might even try pulling up until 2027. And that's assuming enough Americans get their heads on straight to vote out the congress currently rubber stamping this wanton destruction.
Approval poll numbers seem to indicate a plurality of US voters agree with much of what the current government is implementing and for the first time in a very long period the majority of US voters seems to think the country is on the right track. You may not like what Trump and his crew are doing but most people did not like what your preferred candidates were doing and planning to do. Given these numbers I'd say "your democracy" (which is a constitutional republic but I'll just borrow some of the oft-heard rhetoric from the "democratic" party) seems to be functioning quite well and certainly a lot better than under the previous regime when approval numbers were abysmal.
Nice try, but the comment you're replying to didn't use the word democracy at all. Maybe it would help to read it again.
Just because a group of people approve of things happening doesn't make it a good year. My estranged family does and they don't have a grasp on the notion of cause and effect nor do they have an acceptable level of reading comprehension- I do not value their opinion in the slightest l.
What are you talking about? The admins current net approval rating is -6.9% https://www.natesilver.net/p/trump-approval-ratings-nate-sil... Biden was at a +5% net rating at this point in his term
> -6.9%
Still extremely high by global standards considering everything.
e.g. Hollande in France was at less than -80% not that many years ago.
Approval ratings are just measures of partisanship. Ideally it drops to zero. The fact that it was nearly 40% for a leader experiencing dementia-like symptoms confirmed this with political theoreticians.
Biden had a team around him to work with, plus the general separation of responsibilities of independent agencies. So nominal "Biden" was doing just fine regardless of the one man. This time we're getting the full dementia experience from a manic mad king who has already driven away anyone that might tell him no.
Strike "the US" as well...
The Yen carry trade is unwinding and this activity will weaken the dollar because the arbitrage was propping up the dollar above its net value.
Meanwhile the CCP hasn’t unpegged their currency while they are experiencing deflationary price declines.
Yikes
What does “worst” mean in this context? Countries often want to keep their currency weak because it helps their exports: https://www.investopedia.com/trading/chinese-devaluation-yua... https://www.investopedia.com/terms/d/devaluation.asp
DXY index - often what these news reports use when talking about the dollars decline is ~97 today—still stronger than the ~90 it finished 2014 at and almost the same as 2018.
Ask yourself, did you panic during these years? Mostly no. These were pretty good years.
that index grew significantly in both those years...
Volatility is normal - the main point is the index was lower than it is today (meaning we had a weaker dollar than this blog post is referring to as problematic) and the result wasn’t chaos - the economy grew.
Entirely by design.
Cheaper dollar boosts US exports. Makes imports more expensive even before tarrifs. Which situationally, some industrial sectors will want. The exporting ones. The ones reliant on imports, less such.
The US isn't self sufficient in food. Food imports are going to get more expensive.
> Cheaper dollar boosts US exports
Countries may be unwilling to trade with an increasingly belligerent US that slaps everyone with tariffs. In fact, many will just slap the US with tariffs and other barriers of their own.
> Which situationally, some industrial sectors will want
No major US export sector operates exclusively as an exporter without any exposure to imports or global supply chains. Even the largest US exporting industries (oil and gas extraction, civilian aircraft and parts, and pharmaceuticals) rely in varying degrees on imported inputs, components, or capital equipment... which companies are you talking about?
I was talking about oil and gas mainly. I'm unsure if US steel is competitive with any other producer, it's probably ring-fenced markets only. I hadn't thought about their exposure to imports on the production side, your point is good.
The US produces ~4,000 calories per person per day and consumes ~2,500.
Switching to a diet mainly made up of maize and grain might not be that appealing to most US consumers though
US consumers don’t go to the grocery store for “calories”.
Ironic the side that likes to joke about the lack of choice in certain foreign supermarkets is going to create those conditions here at home.
> boosts US exports
The world doesn't need that much guns and missiles. There are two major markets currently and that's all mostly.
US doesn't just make weaponry but let's roll with that. You said there are two major markets now, I assume you mean Europe, that is the most wealthy continent, and Middle East one of the most awash with cash regions in the world.
You may be tempted to assume that only active participants in wars buy weapons, but that has never been the case. And especially now, you have many countries trying to restock and prepare.
A lot of European countries are probably rethinking dependencies on the US as a supplier of weapons.
After they think, what will they do?
Buy weapons systems developed in Europe?
Act on the urgent issue that so many bottle caps are still not attached to their bottles.
[dead]
Guns and missiles don't even make it into the top five U.S. export categories. The largest good exported is civilian aircraft parts, although it pales in comparison to business services exported (>$200B) and financial services (~$175B).
A lot of foreign customers are rethinking their dependency on American services, too. Not out of some ideology, just hedging against whimsical policies. Just a year ago, such discussions would have been idle crackpot watercooler talk, now it's a normal boardroom subject. The shift will take time, but that's it's even on the agenda is incredible.
> The world doesn't need that much guns and missiles.
Yet they seem to be begging for them pretty hard.
Rheinmetall shares are doing well. They're in all kinds of JV worldwide. It's not Basil Zharoff spectacular but they're healthy. The world wants the blessed Mary of the javelin, and anyone who makes NATO 155mm has a market.
People who bought the F35 have mixed views. Awesome tech. Is there a remote off switch?
British arms factories are salivating at the prospect of NATO and EU spend. The French want to ring-fence them out but almost any complex materiel is made across Europe in the wider sense. Risk management drove there, I think France will stop being silly once their factories supply books are healthy.
> Yet they seem to be begging for them
American socia media takes care that they are all engaged, quarrelsome, and polarized.
I think that’s the goal. Trump wants to devalue the dollar to make imports more expensive and exports cheaper. It’s inline with his tarriff policy to reduce the balance of trade deficit.
It’s just that countries don’t admit when they are devaluing currency, because devaluing currency could cause a loss in market confidence, devaluing it could cause a tit for tat currency war, or it could result in speculative attacks against the currency.
But just to emphasize my point, the dollars decline is intentional.
It really says something when the instability of the dollar is (relatively) as bad as when Nixon took us off the Gold Standard in 1973. Trump's policies certainly have caused a large amount of instability.
More about this: https://en.wikipedia.org/wiki/Nixon_shock
It's easy to blame an individual administration but the reality is pure fiat currencies will always end in this way. When was the last time the US had a balanced budget? Clinton? If you don't have a constraint on printing new currency you will always print more.
A good example I heard today was this. Imagine if you have a legit money printer. Show me the most pure human and eventually they will hit that button and print new money. That's what we've been doing for a long time now to finance all the wars and bailouts.
https://fred.stlouisfed.org/series/M2SL
A good book: https://www.lynalden.com/broken-money/
Oh we can happily blame every administration that did this. It may be the natural conclusion of this behavior but that doesn't mean we need to continually rush head first into trouble. The current administration absolutely needs to shoulder more scrutiny than the past ones because they are actively making decisions. They don't get a pass just because the others did it too.
It isn't just one administration. There's quite a bit of consistency over which administrations are "good" for the economy and the people, and which are "bad".
I can't believe people still put faith in fiat. It is controlled by the government and the sole purpose is to have as much control over the people as possible. Monero is the answer for it. You get full control, privacy and anonymity. The ultimate financial prison break. It saves you from the prison of taxation imposed by evil and nasty governments of the world.
> as much control over the people as possible
Also significantly increasing economic and financial stability (compared to the days of the gold standard with its permanent boom and bust cycles)
[dead]
Trump and Bessent announced in the past week or so, that instead of terming out the debt, they'll ramp up refunding using T-Bills (max 52w duration) until Fed Chair Powell's term ends in 9 months. If they actually follow through on that (I suspect they just try to jawbone Powell), it could weaken the dollar even more.
Don’t they want a weaker dollar to bring manufacturing back to the US? If manufacturing jobs were up while service sector hiring fell, would that be proof that they are succeeding? Not good for the middle class, perhaps intentionally, but if you’re homeless and need a low skill manufacturing job you’re prospects are finally looking up.
Yes, it could support US exporters while it increases inflation.
Thank you daddy Donald, awaiting 1.5 USD for 1 EUR. I like cheap dollar. I like money.
Then payments to Tim Apple will be more affordable!
Does this mean EU tech workers are now even more expensive for US companies?
In most cases EU tech workers that work remotely for a US company get their invoices paid in USD (same with the outsourcing agencies), so I'd say no.
But they are spending locally in EUR or whatever their currency is.
Pretty normal to have a contract in euros if you’re using e.g. remote.com
Yes, but they may ask for more USD than they would if the dollar were stronger against the Euro.
yeah but they're still >50% off SFBA salaries. SFBA comp for a sr dev can easily be $200k+ (and can go higher, lots of anecdotes on here about $350k+ salaries at BigtechCos), for an EU dev scratching 90k euro is considered "good". Devaluing the dollar by 10% and increasing the price of EU salaries by 10% doesn't really change the picture.
> even more
They were extremely cheap, though? Even in richer Western European countries..
"Food for thought: The year that came closest to 2025 in dollar depreciation was 1973, and the result was then-President Richard Nixon taking the US off the gold standard. “Big moves in the dollar tend to create moments of instability,” Morgan Stanley’s Wilson said."
But are we great?
I'm convinced that 1. USA is about to experience dramatic inflation 2. US Stock market is an overvalued bubble
Not sure what to keep my retirement fund in if not those though :c
Gold or other commodities would be the standard asset to go for if you expect dramatic inflation.
Dramatic inflation = growing stock market (all other things being equal).
Just look how great the Turkish stock market did since 2020. ~14x increase (in local currency)
The entire world will experience dramatic inflation around 2040 when population decline starts spiraling down the population side of GDP shrinkage.
Maybe its just because I grew up on rhetoric of population crisis and malthusian collapse but shrinking population is one issue I genuinely can't bring myself to care about.
Shrinking population as such might not be terribly on an individual perspective.
Aging population and a significant decrease in per capita productivity. Well that’s not great for anyone..
VXUS is a reasonable choice given those concerns.
This week there is the BRICS summit in Rio, and a lot could happen there. Also Japan debt seems about to dangerously spin out of control.
I'm afraid we're to live in very interesting times real soon.
Trump: We are buying much more than we are selling. Let's make buying more expensive for us! I am a genius!
Economists: No, no, no, no...
The People: Genius! Genius! Let's vote him!
[dead]
Debt reduction by 7%.
No. Usually what happens is that your rates go up. It can mean your debt goes up.
Does that offset the One Big Beautiful Bill Act?
7% lower vs what? Feels like it's about 20% down vs the Swiss franc.
It literally shows that in the graph. A basket of the world currencies.
If only Ronald mc Dumb has a brain. But he and his maga tribe will celebrate this as a big win
Most Americans don't need cheaper iPhones and Amazon/Taobao slop, they need higher wages, cheaper food, cheaper housing. A cheap dollar moves industry back to America and this is a win for the average American. A weakening dollar is basically a gigantic macroeconomic signal to move investments back into the American economy instead of pushing them away.
The flip flopping of the government is also a gigantic macroeconomic signal to not invest in the US as there is no long term prediction possible.
CHIPS act goes away, something else comes, trade deals are made, then tariffs, then no tariffs, then tariffs again.
You don’t offset a cheaper dollar against counter tariffs.
You’re one nationalization away from becoming the next Argentina.
Weimar-a-largo
[dead]
I was under impression that americans already have pretty high wages, cheap food and cheaper housing. At least compared to many other countries.
Is the cost of food and housing going down?
Except from all the investors who are literally dumping dollars and treasury bonds and use other things to transact and store value.
Good luck getting loans & investments for your 100% American business ideas.
Hint: Go to any country that is not called the USA and try to get a $1M equivalent loan/investment for your startup and let us know how it goes.
It's not just the value of the USD but its usage in trade and as a reserve currency in central banks is going down. Europeans are fantasizing about Euro taking over the reserve currency status but it doesn't appear to be happening, instead gold, crypto and other currencies appear to gain ground.
Maybe crypto will eventually be useful for trade?