Politically it is a tough decision. What will get you re-elected? What is best for the American people in the short run and long term? A higher stock market or a stronger Dollar. Very few average Americans understand that we cannot have both. The stock market moves 100% inverse to the stock market. Dollar up, market down. Dollar down, market up. Today, the stock market is slightly lower with the SPDR S&P 500 ETF (NYSE:SPY) trading at $135.28, -0.59 (-0.43%). Why is the market lower today? The Dollar is rising. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $21.47, +0.09 (+0.42%). Please recognize that the percentage the Dollar is up, is identical to the percentage the markets are down.
The Federal Reserve has wanted a weak Dollar policy since this crisis began. In fact, even far before that. The weaker the Dollar the higher exports. Trade balances adjust and overall it is a more even playing field for the United States when it comes to selling and buying goods. In addition, more recently the Federal Reserve found that they could manipulate the stock market by pushing the Dollar lower. Ben Bernanke has fought long and hard to put into effect his thesis paper from way back in the day. This thesis basically said, to create a recovery, the powers that be must make people believe there is a recovery, then it will happen. Essentially fooling the average American. While in theory this may be something to like, reality happens to have consequences.
While dropping the Dollar and pumping trillions of Dollars into the economy helped in the short term, the questions remain whether or not the recovery will last. In addition, as commodity prices surge, the average American struggles to pay for food and energy, has a weaker Dollar really helped? In addition, is the weak Dollar policy, which is forcing the markets higher, really helping? In reality, a higher stock market and weaker Dollar helps those who invest heavily. The richer Americans do not care much if food and energy costs go higher as they can afford it. In addition, as long as they are invested, the weaker Dollar drives up equity prices, thus offsetting the rising cost of good for them.
On the other hand, the poorer Americans are getting the short end of the stick. Not only do they not have significant investments, or even any investments but the rising costs of food and energy of creating a catastrophe. Bottom line is this. Who is this policy really helping? Is it just another way to enlarge the gap between rich and poor? What is better? A weaker Dollar for exports and the market or a stronger Dollar for the average American?
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