Basically, we engineered a way for the whole world to need dollars (most major oil producers would only sell oil in dollars), and as a result, the forces of supply and demand hold open our trade deficit to provide the rest of the world with dollars.

Export-driven countries like Germany and Japan were able to rise to the occasion on the other side of

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expanding the monetary base is very different than expanding the broad money supply. Many people think that QE alone is inflationary, but it’s not. At most, QE alone is anti-deflationary, or inflationary for asset prices in particular. On its own, QE doesn’t result in more money in peoples’ pockets chasing more goods, or higher commodity prices.

A

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When Paul Volcker became the chairman of the US Federal Reserve in 1979, after years of the United States being unable to control its worsening inflation problems, he proceeded to sharply increase interest rates to approximately 20%, which is associated with finally quelling inflation. The inflation-adjusted yield on bank accounts was very high at

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In 1944, the US led other countries in putting together the Bretton Woods system, in which most currencies were pegged to the dollar, and the dollar was pegged to gold.

In 1971, however, the US defaulted on this system, rendering the dollar no longer redeemable for or fixed against gold. After that, all currencies rapidly fell vs gold, and along

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When the Fed’s balance sheet rose sharply from 2008-2014 via QE, it didn’t necessarily translate into broad money supply going up because there was no direct mechanism to turn base money into broad money. However, in 2020, the combination of QE and large fiscal deficits (literally sending checks to people) did cause the broad money supply to go up

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As previously shown, Japan has a rather balanced trade situation, and has a current account surplus. This presents a natural “floor” for the currency vs other currencies.

On the other hand, the United States has a structural multi-decade trade deficit and current account deficit.

Because the US trade deficit is so large and structural, when we shift

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which of the following advanced currency areas had the fastest rate of broad money supply increase per capita over the past twenty years? The United States, Euro Area, or Japan?

Most people would probably guess Japan, since their central bank has been the epic printer.

The answer is actually the opposite. Japan grew their broad money supply far more

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in the latter half of the 1980s, as their currency rapidly strengthened against the dollar. While a strengthening yen would benefit Japanese consumers, the products of various Japanese exports became a bit less competitive. Fortunately, their quality-to-cost ratio was very high.

Japan responded with monetary easing, fiscal stimulus, and financial

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As the yen strengthened in those early years, along with general global economic problems, Japan developed a rare trade deficit, which is unusual in its multi-decade history.

When the Bank of Japan began massive QE in late 2012, it began sharply weakening the yen vs other currencies throughout 2013. And then, in 2014, the US Federal Reserve ended

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