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A Rising Dollar Terrifies Keynesians

Written by Gary North on January 28, 2015

The headline in the Financial Times blares this message: Strong dollar weighs on US results.

Keynesians love soft dollars. They love price inflation. They love a boom caused by central bank inflation.

The Federal Reserve stopped QE3 last year. It is no longer buying U.S. government debt, Fannie Mae debt, Freddy Mac debt, or anything else. Meanwhile, Japan, Great Britain, and the European Central Bank continue to issue digits to buy their government’s debts. What happened? The dollar rose in value against them?

Will wonders never cease.

This means that their people buy fewer goods. But Americans can afford more of their goods. American consumers get a bargain at the expense of foreigners. Foreigners watch Americans outbid them in the marketplace. Americans can afford to buy more of their currencies than before. Americans go on a shopping spree.

Yet we read this: Strong dollar weighs on US results.

The stock market is down. Well, it’s wildly up one day and wildly down the next day. The casino that the FED has created looks shaky. It is shaky. When a central bank quadruples the monetary base and then stops, the stock market gets shaky. This is what the Austrian theory of the business cycle teaches.

Still, the Financial Times sounds the alarm. “O, woe! A strong currency strikes again. Soften it! America needs more fiat money!”

So, we read this:

Blue-chip Wall Street stocks saw sharp falls on Tuesday after a string of weak results showed the pressure US multinationals are coming under from a stronger dollar and subdued global growth.

Companies as diverse as Caterpillar, Dupont, Microsoft, Procter & Gamble and United Technologies have reported disappointing profits or warned they faced challenges in the year ahead from sluggish emerging market growth and the strong domestic currency.

Then they can shift production and sell to Americans. The free market is supposed to tell executive to shift when demand falls in one market and rises in another.

But most American companies sell to Americans. So, why is a rising dollar the cause of the decline of the entire stock market.

Keynesians just don’t know. So, they write stories like this one.

Before record-setting earnings from Apple after the market closed, equities also reacted to weaker than expected US durable goods orders for December, which declined by 3.4%, following a downward revision of 2.1% for November.

So, it’s a decline in American demand. Well, then, how did the rising dollar do this? Why is the American consumer, who is better off from a rising dollar, not buying?

“The two month decline [in durable goods] is evidence that the dollar’s strength is starting to show up in terms of weaker orders, a new soft spot for manufacturing that perhaps will give some of the Federal Open Market Committee pause if not worry as they meet,” said Chris Rupkey, chief financial economist at MUFG Union Bank.

I have never heard of the MUFG Union Bank or Mr. Rupkey. But he is echoing the prevailing sentiment on Wall Street: “Please, FOMC, don’t raise interest rates.” How, pray tell, will the FOMC raise interest rates? We are never told. A magic wand, perhaps.

The dollar has risen 17 per cent since last summer, hitting the value of US companies’ foreign earnings and compounding the problems they face from weaker economic growth, political tensions in some markets and the more than 50 per cent fall in crude oil prices over the period.

Better deals for American consumers: the horror!

“While avoiding the temptation to draw any major conclusions from the recent weakness in durables, there is an obvious concern raised as to whether slower growth overseas and the rising dollar are starting to take a toll on manufacturing, a sector that is significantly export-oriented,” said Anthony Karydakis chief economic strategist at Miller Tabak & Co.

Mr. Karydakis does not tell us that about 87% of the U.S. economy is not export oriented. So, why did the entire stock market tank? He didn’t say.

They never say.

The Financial Times is not alone. USA Today blares this headline: Consumers are giddy; businesses, not so much.

A slew of economic reports Tuesday highlighted the growing confidence of consumers and the emerging concerns of businesses.

Consumer confidence surged to a more than seven-year high in January as gasoline prices continued to tumble and job growth remained strong.

Then we are told this:

Companies, which increasingly depend on U.S. exports for a portion of sales, are worried about economic weakness in Europe and a strengthening dollar that makes their products more expensive overseas. Meanwhile, the energy industry is curtailing investment amid the sharp drop in oil prices.

Keynesianism is a fancy form of mercantilism. Keynesians want the central bank to goose the economy. They want softer dollars. They want inflation. The idea of falling consumer prices terrifies them.

They run the central banks. They run the universities. They run businesses. Their anti-market, anti-consumer outlook dominates.

I say this: “Enjoy stable prices while you still can. Keynesians run the show. Yellen & Co. will crank up the printing presses soon enough.”

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