I found an interesting article written by Alex Merk, Manager of the Merk Hard Currency Fund. He lists what he believes to be are dollar myths. Here’s an example:
"The dollar is safe because the U.S. has ample assets
Some say the current account deficit that requires foreigners to arrange for over $3 billion of capital inflows every business day just to keep the dollar from falling does not matter. These pundits say a deficit of 6.5% of Gross Domestic Product (GDP) is sustainable because the deficit is only about 1% of all private assets held in the U.S.; as a result, deficits could be carried a long, long time.
This argument is one about the dollar going to zero, an extreme case of the dollar losing relative to other currencies. However, the current account deficit and its affect on the dollar is about cash flow: by putting it in the context of a GDP is reasonable, as GDP is a cash flow measure of production. Comparing it to private savings is mixing apples with oranges."
Here’s a list of Merk’s other dollar myths:
- The dollar is doomed because of our large budget deficit
- A lower dollar will cure the trade deficit
- A lower trade deficit will save the dollar
- A weak economy causes a currency to falter
- China is the problem
- Higher interest rates help the dollar
Read his full analysis to learn the reasons why they’re all myths.