A good way to judge which way the economy is going is to watch the USDX (United States Dollar Index). Several years ago, when Lehman/Bear/Wachovia/Wamu etc.. collapsed we were concerned that the USDX was going to dip below 72. A complete collapse in the value of the dollar would have ushered in a depression. (Yes...the Fed HAD to print - No choice.) With a weak dollar we export more - economic strength through product (economic) creation. It simply helps the domestic industry. It's a delicate balance, without a doubt. Too weak and no one wants the debt. We're not trying to dissect the metrics of it, just get your heads wrapped around the concept.
A strong dollar, as ours has been trending, creates weakness for domestic industry - exporting being the concern (where our growth has been coming from). A strong dollar slows growth much faster than taxation. The USDX in the last 9 months has climbed significantly. 9+ month rolls are the best metrics to use.
(The unemployment rate is an entirely different topic)
NOW.... The the war drums are pounding that the dollar will reach parity with the euro. Right now, the euro is trading; 1 euro to 1.2924 dollars. With the European crisis starting to ratchet up even more, the ECB's must start printing euro's. Weakening the euro, strengthening the dollar. This will dramatically slow the domestic manufacturing engine in our country. So, the Fed will fire up the presses and fight back. Will that create a currency war? We're in a fight with Brazil - and brazil is winning. A currency battle with Europe would be a similar story. We are the reserve currency it's a tough fight to win.
CNBC has even put up an article from the Financial Times about it HERE.
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