Is the weak US dollar leading to inflation?
The assistance of professional debt management plans can be accentuated in case of dealing with personal debt problems but the same has no role to play when it comes to dealing with national fiscal crisis or financial turbulences. As a matter of fact, the US dollar is getting weaker in its value day by day and the factors which can be held responsible for the same are majorly: the federal government’s concerted effort to maximize the dollar liquidity available to the world in the hopes that this will stimulate the economy and avoid the risk of deflation and the world’s weak demand for the dollar which, in turn, is likely fueled by concerns related to potentially inflationary monetary policy, massive federal budget deficits, a lack of U.S. leadership, and the relatively tepid U.S. recovery. As the dollar is getting weaker, it is automatically reducing the purchasing power and wealth of all US residents, exacerbating inflating pressures. Over time most imported goods prices will tend to adjust upward to compensate for the dollar’s weakness. You can’t have a weak and falling currency without eventually having rising inflation. Inflation is nothing if not a measure of the loss of purchasing power of a currency. U.S. monetary and fiscal policies have been in max-stimulus mode for quite some time, yet the only obvious result has been a weaker dollar and a struggling economy.
Supply-side and classical economists know that you can’t create growth via the printing press; too much money only reduces confidence and increases speculation, to the detriment of genuine investment. Furthermore, increased government spending only wastes resources that could be put to better use by the private sector and income redistribution schemes only create perverse incentives; rewarding those who don’t work and penalizing those who do. This leads to the conclusion that we need less “stimulus” if we want to really stimulate the economy. Monetary policy needs to demonstrate a deeply held conviction to preserve the purchasing power of the dollar—to give the value of the dollar precedent over the state of the economy. There is no evidence, to date, of any unusual increase in the various measures of the U.S. money supply that might support a significant rise in inflation, and to date there has been no significant decline in the demand for money that might also support a higher and rising price level. Quantitative easing looks and feels very inflationary, but so far nothing much has happened, except for the very weak dollar. There has been no unusual expansion in any of the common measures of the dollar money supply, so any actions that increase the world’s demand for dollars could go a long way to fixing the relative over-supply of dollars that is depressing the dollar’s value. For example: to quickly boost the demand for dollars, Congress could adopt a new and healthier fiscal policy; and the Fed could embark on a sooner-than-expected tightening of monetary policy. Plus, if the economy continues to improve, as I think it is, this would also boost dollar demand by increasing confidence in the future. Thus to take control of the entire situation, government has to take immediate, relevant and financially balanced measures in order to put the health of dollar back into track.
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