THIRTY-FIVE FREQUENTLY ASKED QUESTIONS ANSWERED 257- If there is a “strong dollar” does that mean the dol-
lar will not collapse?
The question confuses the cross rate with the systemic risk.
If the dollar is strong, it’s strong versus euro or versus yen. The
people base that on what’s called the DXY, which is a dollar
index. The dollar index is heavily weighted to the euro.
A strong dollar, however, doesn’t mean that the whole sys-
tem isn’t nearing a point of collapse. Looking at the cross rate
is like you’re on the Titanic while it’s sinking and your chair
is fine but the person’s chair next to you is a little lower than
yours. In other words, a strong dollar cross rate is actually
adding to the instability because it’s very deflationary from a
US perspective.
Many people think I favor a strong dollar.
What I favor is a stable dollar. It could be stable at a strong
level, but the point is when you go from 2011 where the dol-
lar was collapsing, to 2015 where the dollar is king of the hill,
there is enormous volatility, which is very destabilizing.
The death of the dollar or the collapse of the international
monetary system means a loss of confidence in money as a
store of value by markets, investors and people around the
world.
You might get paid in dollars but you don’t want them. You
take them and you turn them into something else: land, hard
assets, gold, silver, fine art or whatever.
If that’s happening to the dollar, it’ll be happening to every-
thing else at the same time. There’s no way that confidence in
the dollar is going to collapse without confidence in other coun-
tries’ currencies collapsing, also. You’re not going to have a crisis
of confidence in the dollar where everyone demands euros.
I would not judge the state of the dollar or international
monetary system based on cross rates. I would judge it based
on the instability of the system as a whole.