In the Harry Potter series, JK Rowling establishes Voldemort as the Dark Lord who is so feared that it is too dangerous to speak his name. Most characters in the novels refer to Voldemort as “You-Know-Who” or “He-Who-Must-Not-Be-Named”.
A theme in the financial media has developed a similar status to Voldemort. You wouldn’t know about it because “It-Must-Not-Be-Named”.
The theme you have heard about is that the US government is running the “printing press” and creating US Dollars out of thin air.
The doom and gloom that surrounds this story are non-stop. “Inflation is out of control because the US has been printing too much money” are the words you will hear from any two-bit financial analyst.
If there are so many US Dollars floating around, why is it so expensive to buy them?
Since June 2021, the US Dollar index, also known as the DXY, has shot up like a rocket ship to Mars. The index has increased by 27% to levels last seen in 2002.
The printing press has not been running. There are no pallets of US Dollar notes being dropped from helicopters. That is the story told by an ignorant corporate media.
The inconvenient story is that the US Fed swaps Reserves for US Treasurys and Bonds with qualifying banks. These “Reserves” are supposed to the lent to individuals and businesses. The problem is that bank leading since the great financial crisis of 2008 has been so low that growth is severely restricted.
New money is created through bank lending. It is called “fractional reserve banking”. If growth and confidence are low and banks are risk averse, new money is not created fast enough. The problem that arises is a global dollar shortage.
There, I said the words. “Global Dollar Shortage”. No one wants to say it. “It-Must-Not-Be-Named” because how can that possibly be true if the US is supposedly printing so much money?
As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” The so-called “inflation” is a price shock caused by idiots who think they can push pause on the economy in the interest of saving lives.
The global dollar shortage and the demand for dollars are driving the DXY up. Increasing interest rates is akin to the dark art of Voldemort. The Fed’s so-called medicine for inflation will end up being the poison that potentially kills the patient.