RE:From The KereportExcelsior on 'velocity' of money. He has a unique ability to describe and bring to life the forces unleashed by central bank money creation.
On March 27, 2021 at 7:37 pm,
Excelsior says:
Good thoughts Doc. Yes, the Dollar has been in a stealth move higher since the beginning of the year from 89 to pushing 93 last week. Personally, I still believe the Dollar is in a larger downtrend, and that this move higher in the greenback has just been a dead-cat bounce, but the increasingly stronger dollar has pressured commodities like Oil, Copper, Nickel, Zinc, Platinum, Silver, etc… the last 2-3 weeks.
I’m not sure the powers that be want too strong of a dollar, or it will create havoc in emerging markets, will make our exports more expensive, and it would continue to pressure commodities in a deflationary sense, when the FED wants inflation, not deflation. Most currencies are still in a race to the bottom, but it just so happens that most of the other currencies have done worse than the dollar, so the buck has made new highs against most other currencies lately as result. It’s a case where the Dollar is the prettiest cow in the slaughterhouse.
It seems likely that if the Dollar can work it’s way up to to 94-95, that it would roll over there and then begin it’s next decline down to test the lows at 88-89, and then break lower. If that plays out then it would boost commodity prices, and when paired with rising wages in the reopening trade, it would lead to cost-push inflation.
Inflation is already picking up, and the market senses this, but it is measured and still somewhat subdued. As you mentioned, the Velocity of money is finally starting to pick up, because the stimulus, unlike prior QE, is going directly to small businesses and private citizens, and these trillions of dollars are getting spent and used, and will end up resulting in higher inflation as the years progresses. If they pass another few Trillion dollar stimulus package for infrastructure buildout, then that will also increase the velocity of money and underpin even more inflation heading into next year.