Financial Times/Ruchir Sharma/10-9/2022
“Most analysts attribute the dollar’s surge over the past year to rising US interest rates, which are necessary to fight inflation. But the dollar has become a wrecking ball, rising far higher than one would expect based on fundamentals, including the gap between interest rates in the US and the rest of the world. Its extraordinary spike is driven by investors who think the dollar is the only haven and speculators betting that it will keep rising.”
USAGOLD note: Sharma challenges mainstream thinking on the dollar in this important short analysis. One of the lynchpins of dollar policy is that inflation is held in check by the stronger dollar. Sharma points out that imports make up only 12% of the US gross domestic product, and that 95% of US imports are priced in dollars. “Thus,” he says, “a change in the value of the dollar does little to change the price Americans pay for these imports.” There is much more to Sharma’s argument than we can include in this short note. The full article is highly recommended.
