The U.S. housing and banking system was the epicenter of the global financial crisis in 2008, and the Fed used a few rounds of quantitative easing (i.e. expanding the monetary base to buy U.S. government debt and other securities) in the aftermath, which kept its currency relatively weak due to plentiful supply.

When the United States finished its t

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You can see on the chart that it was similar during other dollar spikes from 1983-1987 and 1996-2003; dollar spikes are historically bad for U.S. corporate profit growth and this third one is no different.

This latest bout of corporate stagnation has been somewhat masked by higher equity valuations, corporate tax cuts that boosted after-tax profits,

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While the strong dollar gives U.S. consumers more buying/importing power, it makes U.S. products and services more expensive, and thus less competitive in the export market. Basically, it helps some groups live above their means (and U.S. asset prices have been doing great), but it hollows out the U.S. manufacturing sector and negatively affects th

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The Triffin Dilemma Unfolds

In the 1960’s, economist Robert Triffin noted that global reserve currencies have to run large persistent trade deficits, which has been coined the Triffin Dilemma. If the reserve country doesn’t supply the world with a lot of their currency, then the world simply can’t use that currency for international trade, commodity

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In recent decades, the S&P 500 now receives over 40% of its revenue from international sources, and a stronger dollar means that when those foreign revenues are translated back into dollars, it comes out to a lower number of dollars. The percentage of S&P 500 sales from foreign sources peaked in 2014 and has been on a mild downtrend, coinci

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Imagine, as an extreme example, that the entire world had to use Swiss francs for its international transactions and commodity purchases. It simply wouldn’t work, because there isn’t enough money supply from that small country for the whole world to use. It’s not liquid enough; there aren’t enough francs.

The current system is running into that issu

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Emerging markets as we currently know them didn’t exist during the 1980’s dollar spike. The MSCI Emerging Market Index was created shortly afterward in 1987, and it was a small share of global GDP at the time. Developing countries of course existed during this dollar spike, but just weren’t significant players in the dollar market. So, this 1980’s

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The first and largest dollar spike occurred in the mid-1980’s. From the 1970’s and into the early 1980’s, the U.S. dollar encountered serious devaluation and inflation, so Fed Chairman Paul Volcker hiked interest rates up to the double digits to stabilize the dollar and force inflation back down. This, however, made the real interest rate on the do

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1990’s-2000’s Dollar Spike

During the 1990’s, several emerging markets began to grow substantially, and began taking on dollar-denominated debt while the dollar was comparatively weak.

Meanwhile, the United States enjoyed prosperity from the Baby Boomer demographic bulge in prime working age combined with the dotcom boom and its associated new mega

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