When I began to collect my thoughts for this blog, I thought I would say something like King Dollar has returned. Some people might think it ludicrous to talk about the dollar that way because as “everybody” in the hobby knows the dollar is in trouble and gold is the only answer.
Well that ain’t necessarily so. Just as the communists of the 1930s were calling the Great Depression the final crisis of capitalism the current fashionable crowd wants to declare the present the final crisis of the dollar.
Such declarations certainly grab headlines, but historically, there is little to support the concept.
However, as I thought about how I would write the blog it occurred to me that the point I wanted to make is better made if I call it Mom Dollar.
Just as children wish to assert their autonomy from Mom as they grow up, when scrapped knees and encounters with the mean kid down the street occur, they run back to Mom.
Banks have badly scraped their knees and leaders like Vladimir Putin in Russia or Hugo Chavez in Venezuela are playing the mean kids.
The result is a return to Mom Dollar.
The wave of diversification that started in 2001 to 2002 seemed like a good idea at the time to many people. To jump into these markets, they had to sell U.S. dollars to buy the Canadian dollar, the South Korean won, the euro, or the British pound. All of this sold the dollar lower as nondollar denominated assets were bid up in price.
Now the reverse is happening. Those assets priced in wons, euros and pounds don’t look nearly as appealing. They are being sold. The proceeds are converted to U.S. dollars and that dollar demand is pushing up its price relative to the other currencies, sometimes sharply. The dollar is up almost 30 percent against the won this year.
It seems like only yesterday instead of a year ago that some Canadians were having fun debating whether they would take American coins because their Loonie was exceeding the U.S. dollar in value. Well, anybody who did has made money. The Canadian dollar is now 94 cents.
How long will this run back to Mom Dollar last? Good question. But the outflow from dollars lasted a good seven years or so; the reverse might last awhile, too.
But then Mom always did know best, didn’t she?