One of the most widely held beliefs since the financial crisis in 2008 has been that the Fed's printing will eventually crash the dollar. I run into this all the time when I talk to people.
The reality: not only has this not happened, the dollar has actually strengthened in recent years against a basket of other major currencies. And rather than being a temporary blip, it's a trend that's likely to continue.
How can this be? The main story is the U.S., and by extension the dollar, being the best house in a bad neighborhood. When everyone is debasing their currency, the one doing it the least winds up looking the best. That's where the US and dollar are today.
Japan and the Yen — total basket case. Europe and the Euro? No thanks, their economy has been in on-again, off-again recession the past few years. By comparison, the tepid recovery the US economy has been experiencing looks pretty good. And we're winding down our QE program while these other countries are still ramping up.
Paul Schatz of Heritage Capital explains it similarly:
“The dollar is a function of many things, most importantly it is a relative value vehicle. Meaning if the dollar is strong, other currencies have to be weak," he says in the attached video. "My stance since 2008 has been, of all the places around the world to store your value, I’d rather store it in the greenback than the Euro, clearly the Yen, the [U.K.] Pound and Canadian dollar.”
Despite the dollar hitting new highs, Schatz is convinced it has a lot of room to run. “People don’t realize the low was March of ’08… in fact, [contrary to popular opinion] once the Fed began to print money, the dollar has only appreciated, “ he says. “I think that there’s an awful lot of room left. When you look at the dollar index, a basket of currencies, it’s only a few percent off of the lows.”
In the 1980’s, Schatz notes the dollar index was at $120, whereas now it’s in the low $80s. Schatz believes there will be a big run up over the next few years. “I think the first stop is $100, and then later this decade the dollar index runs much further as our economy does better than the rest of the world.”