Boomerang Effect

Financial news of late shows that the dollar is rising in value, while other currencies are falling. As of Monday, 9/26/22, the British Pound had effectively reached parity with the dollar. That is the lowest the Pound had declined to in decades.

There are a number of things which are barely mentioned in passing about this, if mentioned at all.

The first and most obvious point is that this rise is only in relation to other currencies. Meanwhile, other currencies are declining in value for specific reasons. Like reduced production, which is happening for very specific reasons. Most notably, across Europe, production has declined as a result of US-led sanctions on Russia, which has led to record high energy and fuel prices, which has made production too expensive to be competitive. The Chinese yuan remains suppressed due to lower than expected growth because of ongoing pandemic restrictions.

None of that means that China is not producing or exporting. Just that they are doing so at a lower than expected rate. China’s GDP has seen one quarter of GDP decline, which is expected to slowly reverse in the third quarter of this year.

Meanwhile, the US has had two consecutive quarters of GDP decline with no sign of reversing. Kind of an interesting…