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May 27, 2023

It’s no secret that the lockdown-induced inflation of the last three years has pushed millions of struggling middle-class Americans to the wall.  Mainstream economists, in their attempt at whitewashing this fact, insist that inflation is abating and that the U.S. economy will soon return to a relatively “normal” state by the end of the year (the estimate given by most).

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This prediction is based in part on the recent strength of the U.S. dollar index, which many (erroneously) use to measure the greenback’s purchasing power in the everyday economy.  But what the “experts” aren’t telling you is that the dollar index’s strength won’t benefit the middle class as long as there are two separate dollars at play.

Before we look into the problem, a little background will be helpful.  The U.S. dollar index — which is often listed under the ticker symbol USDX — measures the value of the dollar relative to a basket of six major world currencies, including the euro and the yen.  It’s weighted based on exchange rates, with most of the weighting (nearly 60%) in favor of the euro.

The world of international currencies can be arcane and confusing, but a rule of thumb to help you understand is that when a nation’s currency is persistently strengthening, it normally means the nation’s economy is also strengthening.

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Conversely, a persistently weakening currency implies a country is undergoing inflation, which undermines the economy.  For a good part of the “pandemic” years of 2020 and 2021, the U.S. dollar index was in fact weakening, reflecting the massive amounts of money-printing the Federal Reserve was engaged in (allegedly to counteract the ill effects of the lockdowns).

To the average middle-class American, the weak dollar was symptomatic of the dramatic price increases everyone was now paying — for everything from food to fuel to rent.  But what the dollar index’s weakness really meant was that the U.S. economy was in peril from Washington’s shutdown orders.  Consequently, with the dollar index in decline, America was no longer an attractive place for foreign investors to park their money.

Neither Washington nor Wall Street could long abide this situation, so the weak dollar problem was “fixed” during the second half of 2021.  That’s when the U.S. dollar index turned around and kicked off a major rally that saw its value increase nearly 30% over a 16-month period, culminating with a multi-year peak in late 2022.

During this time of the dollar index’s improvement, American consumers noticed something: their fortunes weren’t exactly getting any better.  Gas prices continued to linger near levels not seen in over a decade, while a trip to the grocery store was becoming an alarmingly painful experience.

Fast-forward to late May 2023, and the situation hasn’t improved much for the middle class, even as the dollar index is once again strengthening.  This paradoxical situation raises the question: are there in fact two dollars in play — one for the “elite,” who operate in the rarified realm of corporate politics, and another dollar for the everyday American?

The answer to this question is decidedly “yes”!  In fact, a stronger U.S. dollar doesn’t always mean that inflation (loosely defined here as high prices) on the retail level is diminishing.  What it means is that the nation’s corporate economy and international trading position are improving.