This morning the value of the Euro dropped below $1.30. The United States should thank the European Union for the diversion it has created. With all the turmoil taking place in Europe, little attention is being paid to the monetary and fiscal policies of the United States and the impact these policies are having on the value of the United States dollar against other major currencies.
As can be seen in the following chart, the value of the United States dollar against other major currencies in the world continues its secular decline. In terms of monetary policy and fiscal policy, international financial markets continue to give a negative rating to the United States and continue to see further future declines in the value of the dollar.
I continue to believe that, given the current policy leanings of the United States government, that the value of the United States dollar will continue to decline in the future. Since the early 1960s the United States government, both Republican and Democrat, has generally followed a policy of credit inflation that resulted in the United States going off the gold standard and then resulted in the secular decline in the value of the dollar since President Nixon floated the dollar’s price in August 1971. The two exceptions to this secular decline occurred when Paul Volcker was the Chairman of the Board of Governors of the Federal Reserve System in the early 1980s and when Robert Rubin was the Secretary of the Treasury in the Clinton administration in the latter part of the 1990s.
The Obama administration has continued the policy of credit inflation carried on by his predecessors and perhaps even improved upon it. The only times that the value of the dollar has rebounded over the past several years has been when there has been a “flight to quality” in US Treasury securities. Other than this, the value of the dollar has continued to decline except relative to the Euro.
Again, it seems to me that the United States should thank the European officials for all their follies because they have taken attention away from the political mess in the United States and the continued weakness in the value of the United States dollar in the world.