The Dollar Strikes Back

Good to see the US dollar flex its muscles. In the short run the direction of the dollar will depend on the Fed. The strength of the economy and the rate of inflation will also factor in. Over the longer term the dollars position in the world will depend on the deficits it runs.

I am still a believer that the US is will be in the throes of a deflationary spiral and that the early stages of a deflationary spiral exist and can be seen through the housing market. However the deflationary run although deep in the housing market has not yet begun for either of two reasons. One: I am plain wrong and deflation will not spread from the housing market to the rest of the economy or two: My synopsis was just early and deflation has not made its way through yet. I am not sure of the answer but still believe deflation is coming and I was just very early. I think another sign to look out for will be the local and state governments and their budgets. If the state and local tax revenues fall off precipitously these local governments will be forced to do one of two things. They will either have to find a way to raise more revenues which likely means higher taxes or two they will have to make cuts to their budgets. Neither of these scenarios are of the pleasant variety. If deflation does take hold expect to see the dollar g on a tear and the model Giselle may then wish to rethink her wishes to getting paid in Euros.