Dollar & Inflation

LESSON #1: Dollar & Inflation

DXY has a very minimal relation with inflation in the long run, so does the gold.

Dollar is a global fiat currency, all international loans and business is transacted in Dollar.

During the sudden shutdown in 2020, everybody panicked and sold their stocks & other assets, in doing so buying dollar by selling that asset. So all of a sudden the market saw a shortage of dollars and thus dollar-prices spiked up. Multinational corporations and countries also had to force buy dollars as they needed extra money to fight Covid and avoid losses in their local currencies. Govs. needed to buy as much dollar as possible so they didn’t have to pay way more later to pay off their loans.

All of that happened very quickly so the FED had no choice but to print trillions of dollars in order to solve the liquidity problem. Getting your currencies stronger too quickly causes deflationary risk as well.

Once the FED added liquidity, the dollar price normalized and also too much printing pushed it down as well. However, other nations printed 5X more of their local currencies than the FED (e.g Canada).

Putting this into perspective, the dollar is shi* and it is designed to go to zero in 60-90 years time. But other currencies are 5 times worse. So dollar price will increase against other fiat currencies but against property and non-inflation assets it is crushed.