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Deflation Causes a Currency To rise

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1900$X-Y 2012


The so-called Flight to Quality is the shift in money flows from one sector to the other that traditionally is reflected in the currency. The inflationary boom into the 1980 crashed and burned into 1985 sending the dollar to records highs for the century. Money moves from PRIVATE to PUBLIC and that is where it is. The rise in the currency is NOT indicative of an economic boom or strength. The currency will rise as money flees from assets. The higher the currency moves, the greater the decline in trade and the higher unemployment will rise.


The Plaza Accord of 1985 was all about manipulating the dollar lower to reduce the trade deficit at the time and in theory create jobs. As Europe declines in economic activity, people move from bonds currently into cash. But the Euro is not exploding to the upside. It is really just holding for this is not the normal flight to quality. Capital is very confused regarding where to go in Europe, which is why the DAX has done well because people are moving internally within Europe into Germany in anticipation that if the euro cracks, they will get Deutsche Marks.