A correct affirmative statement is “A strong U.S. economy is good for the dollar”. Get that in place and you can circumvent the new waste of time debate coming to you from the business entertainment media channels today. Because my stars, there’s a whole queue of people wearing suits who want to waste your time with their vacuous opinions this morning.
Here’s an example of the waste of space blathering, a three minutes talking head segment on Bloomie (and Ritholtz also guilty for promoting it via his site), that runs the title “Is a Strong Dollar Good for the U.S. Economy?”
and hits every cliche the business viewer requires to get their head nodding. This is not a chicken-and-egg situation, ladies and gentlemen readers of this backwater blog. Economies do not get stronger due to currencies. Ever. Economies do not get weaker due to currencies, either. One is a real thing that exists, the other is a medium of exchange and its flow from point A to point B allows us to gauge the relative
strength or weakness of the two things at either end (and just to make sure, the word ‘relative’ is bold-typed and underlined for a very good reason, it’s the one word to meditate upon
). There’s this big mental image we’re sold by the ignorant media show, one that the finance world conjures up of a scales-of-justice type weighing machine: You’re presented with a country’s economy on one side and the country’s unit of currency on the other and told “this up this down”. It’s complete bullshit, because only one of those things is real and tangible, the other is a ghost. For sure the most persistent ghost of modern society, but it’s still a ghost.
What we can say is that the Fed now finds itself managing a strengthening US economy and is therefore in the position to make strategic decisions on its dual mandate, with one of them on whether it should foster any further strengthening in the US Dollar. But that’s very different from the dumbass debate, because it gets things in the right order. 1) Horse. 2) Cart.
And on that dual mandate subject, the other angle we’re getting this morning is on how the Fed’s thinking about giving itself leeway on rates so that it can cut when the time comes. The general line goes “Well, Janet’s going to take us to 1% because then she has that to play with when the S&P collapses in 201_
(pick your year)”. This is stock market masturbation of the highest order. It’s strange how even after 100 years of its existence, people don’t understand the Fed’s dual mandate, which isn’t a triple mandate and isn’t a “yeah well that’s what they say but really it’s different” mandate. The Fed does 1) jerbs and 2) interest rates (exact wording being “stable prices” and “maximum employment”). Fed doesn’t do Dow, the Dow does things because of the Fed’s decisions regarding the economy.
PS: And this is what the Dow does as it continues to do its job of reflecting the state of the US economy:
It’s not always up, but I think you can probably spot the trend.
UPDATE: Over at Market Narrative, Iwnattos tries hard to pick a fight with the above but can only find minor quibbles and whinges of the non-core type, which is of course a major achievement on my part. I rule.