What you don't seem to understand is that the entire world is easing (dovish monetary policy). Compared to Europe, UK, Japan, etc., US rates are a bargain-- especially on an fx-adjusted basis.
I understand that, but are they being as dovish as a 23%+ increase in money supply? If yes, then I agree with you. How do I find this out? Any idea?
I think you are focusing on one indicator (m1) without seeing the entire board. The US has the most dovish policy (Fed pinning rates and US fiscal impulse is high), but have you seen the US GDP growth outlook? Global PMI Tracker (bloomberg.com)
Wow, that is EXACTLY relevant. A few weeks ago I was asking in the forex portion of this forum about where I can find the rates and which countries are printing money compared to their expected GDP growth rates, as that in my mind was most determinative of LONG TERM currency fluctuations. In other words, I think that if country A is printing money at a 23% annual rate, but growing at a 6% annual rate, its currency will likely decline long term against country B if country B is printing money at a 6% annual rate but growing at a reduced 3% annual rate. So yes, you've just pointed me to the other half of the equation (the first one being the expected rate of money printing). I think we are on the same page. Nice to see the U.S. has such a strong outlook! But I guess the question is still how much stronger is it expected to be than other countries to see how that plays out into my analysis above. I wish there was one big listing of how much money each country was expected to print annually over the next several years as compared to real expected GDP growth for the next several years. But that link is still interesting and helpful, thanks longandshort!
longandshort, its been awhile since I focused on the different M indicators. Is M1 literally how much money the country's central bank is printing? I remember it being something different, but its been decades lol. Thanks!!!
So I’d say M1 et al is less relevant for sovereign issues like the US, Euro, and Japanese. The reason why is that the debt these countries issue are in their own currency and they have very liquid markets. Currencies are driven primarily by interest rate differentials (which embed economic and inflation expectations). Central banks are fairly synchronized, so most of the divergences in policies are going to come on the margin or in emerging market countries (e.g. Turkish central bank).
I remain long term short from 104 area, rollovers, any spike up are shorted. I won't even consider longs till below 77.
Remember the dollars being printed is going to bitcoin, Rare Pepes and stocks. So for now hyper inflation is not in the cards.
Thanks longandshort. I get that interest rate differentials can play a big role, but why would they play a primary role when inflation is spiraling out of control? My understanding is the interest rate of a country (at least the one most relevant to traders - the one paid/received on forex positions) is set by the central bank of that country. Even if inflation is low, they might set a relatively high interest rate to try and defend their currency against downturns, for example. But in my mind (and maybe I'm crazy or naïve), all that is temporary in the grand long-term scheme of things. In the very long term, if there is an interest rate differential of 2% between two countries, and one of them decides to double their money supply (total printed currency) tomorrow, how is that 2% differential going to make a hill of beans difference between the two currencies? The one that doubled their printed currency HAS to be cut in half, or very close to it, versus the other one. Maybe its 48%, or 46%, or 51%, etc., but common sense says it has to be relatively close to 50%. What the U.S. is doing is not double their currency instantly, but increasing it at a 23% rate last year, and that looks like it is only going to increase remarkably for the forseeable future with no end in sight to the government pork spending. I just don't see how that cannot lead to a huge decline in value of the dollar versus other countries that only increased their currency at a 4% or 7% rate or whatever. Better U.S. growth might help a bit, but what will the growth differences be? Like 1% or 2%? 23% currency growth year over year, and that's only the beginning, is a HELL of a difference to make up...
That is probably EXACTLY why the inflation has not showed up (that much) yet (although plenty would argue its already here bigly). I expect the hyperinflation to REALLY kick in when we have the next serious downturn (recession) and all those assets crumble in value, people putting their money into those things because life is good will all of a sudden be pulling that money out to buy real things, causing mass inflation, further crumbling of those investment assets, more money being pulled out to buy bread and cars, more crumbling of investment assets, etc. etc.