At 2:08 in the video below, Jim Grant makes the point that the dollar is America’s greatest export. A few weeks ago, I argued this very thing as an explanation of the trade deficit: there is no trade deficit, I said, only countries who will trade their goods for US dollars as a commodity in and of itself. I’m gratified that Grant would come to this conclusion too. Now consider OPEC. When OPEC sees the price of a barrel going down, they cut production in order to reduce the supply and get prices back up. The US Federal Reserve bank with QE is doing the opposite; it is increasing the supply. The natural result of that will be that the value of the dollar as a commodity will decline. But we should be forewarned, when the value declines too much, it will no longer be a useful export, and the world will stop being willing to trade for it. Then, the US will be in big trouble.
hat tip: Monty Pelerin