Many people have been extremely concerned about inflation since 2008, when the Federal Reserve started rapidly increasing the money supply. I'm not going to go into a ton of detail on this today, but suffice it to say the environment since 2008 has been the opposite of inflationary — the central bankers around the globe have been fighting deflation with every tool they've been able to dream up.
The primary way this has been approached is each central bank has flooded their market with their particular currency. In the U.S., this meant boosting the supply of dollars. But other central banks have also engaged in various forms of Quantitative Easing and other aggressive monetary policy, which has resulted in a huge increase in available yen, remnibi, euros, and so forth. Japan has been the most aggressive, trying to engineer a situation where the value of the yen falls against other currencies, which they've been able to accomplish so far. The Yen is down roughly 40% against the dollar over the past two years.
The points I'm trying to make with this brief synopsis are these:
- Inflation hasn't been an issue lately. Deflation has been.
- While many Americans have worried about a crumbling dollar, the opposite has in fact been occurring. Other countries have been more aggressive than the US in debasing their currencies. Particularly as the US has been winding down its QE policies, while other countries are still ramping them up, the effect has been that the dollar has been strengthening considerably.
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