Gary Shilling’s monthly missive “The Robust Buck” (subscription only) takes a detailed look at the forces that have been strengthening the US dollar since 2008 and the negative effects this is having on commodity prices, exports and US corporate profits. Shilling also explains why the rising greenback is likely to continue for the foreseeable future based on its relative advantage in 6 key characteristics that have historically defined the dominant global currency:
- Rapid growth in the economy and GDP per capita
- A large economy
- Deep and broad financial markets
- Free and open financial markets and economy
- Lack of substitutes (Bitcoin anyone? –70% in past 8 months, -20% in past 2 days.)
No one is saying America does not have some large financial issues to address. But in a world of captive capital and a global debt bubble, the contest is always “relative” to other options.
The chart below gives a 34-year long-term view on the Canadian dollar (purple) and the US dollar (red) since 1980. The C$ continues to look expensive.