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Matt's Market Insights

 

There's a distinction I'd like to make when it comes to the devaluation of the dollar. It's simple, but in some conversations I've had recently this has come up and it can cause distortions in how people conceptualize the notion of a weaker currency.

 

There are two ways in which a currency can "weaken." The first is with regard to the purchasing power of domestic goods and services, the second is in relation to other currencies. Both these dynamics can occur at the same time and can influence each other, but they can operate somewhat independently as well.

 

We're all aware that the Fed's target for "price stability" is a 2% annual increase in aggregate price levels, or said differently, a 2% annual devaluation of the dollar -- based, of course, on the Fed's preferred measure of inflation. At that rate, the dollar will lose half of its purchasing power every 35 years. ... Log in or subscribe to continue reading.


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