Don’t Bet Against the Dollar

Hyper-inflationists — of the gold bug variety, or otherwise — hold firmly to the mental image of Ben Bernrnanke circling the New York skyline in a helicopter, dropping $100 bills like confetti at a New Year’s Eve party.

True… the value of the U.S. dollar is theoretically at risk of declining alongside an explosion of the supply of dollars circling the system.

But let me give you a list of other countries where the threat of currency devaluation is even worse:

  • Hong Kong
  • China
  • Japan
  • Switzerland
  • Spain
  • Portugal
  • United Kingdom
  • Netherlands
  • Malaysia
  • Singapore
  • Germany
  • Thailand
  • Ireland
  • Belgium
  • Jordan
  • Vietnam

These 16 countries, plus 16 more (which you’ll see below), all have a money supply that, when compared to GDP, is far greater than that of the United States.

Here’s the data graphically, showing that the United States’ money supply-to-GDP ratio is only the 33rd largest:

See larger image

As you can see, the supply of U.S. dollars in circulation is in no way extraordinarily large, relative to the size of our economy.

The same can be said for central bank actions.

Japan, the world’s third largest economy, has committed to adding $671 billion in liquidity this year. That equates to 11% of the country’s economy.

In comparison, the United States only added 5.8% of our $17 trillion economy last year.

Here at Dent Research, we aren’t proponents of this unprecedented period of central-bank stimulus and monetary expansion. That said, we realize everything is relative in the currency markets.

The Fed has begun tapering, which should have a bullish effect on the dollar. Meanwhile, the Bank of Japan is stepping up its efforts to flood the market with liquidity, driving down the value of the yen.

My advice: Don’t bet against the dollar in the years ahead!