Effect of QE II on the devaluation of the U.S. dollar


       People inquire about Swiss currency as hedge against declining dollar, 1970’s US$ devaluation, how to hedge against falling dollar, dollar collapse. People ask will QEII devalue the US dollar? (QE II is “Quantitative Easing” or increasing the money supply through bond purchases by the Federal Reserve bank). People want to know: How much did the dollar get devalued by since start of QEII in August 31, 2010?

    Some mutual funds that invest in foreign currency could be used to measure the effects of QE II since it was announced August 31, 2010. (These funds are not necessarily recommended for investing. I am merely commenting on the economy and using these funds as a reference point.) “CYB” which invests in Chinese Yuan futures up 2.6%; “PLMIX” Pimco’s Emerging Markets bond fund up 8.7%; “MEAFX” Merk’s Asia currency fund up 2.9%; the NYBOT:DX index showed the dollar went from 82 to 75.45, an 8.7% decline, by contrast it all time low was on 3-17-2008 when Bear Stearns failed, with a reading of 70.7. In 2008 it moved by 10 points (12%) from the high to low, so the 8.7% decline is not a record. A recent low was 73. The DX index is composed of developed countries and is weighted by trade volume. So the dollar declined by a range of 2.6% to 8.7% since QEII, even though other countries tried to devalue their own currencies against the dollar so as to keep the dollar from being devalued.

paper money

Money Supply

   As I have previously written the dollar has dropped against the developed countries currencies by about 0.8% a year in the 40 years since the dollar was cut loose from the gold standard. Attempts by the U.S. government to devalue have often been offset by competitive devaluations from other developed nations with similar problems which may be worse than our own. However, one must be careful not to rely upon what happened in the past (slow, gradual devaluation) because there is always the chance that a new paradigm shift could occur resulting a new, substantial devaluation. I have written “Investments for a dollar collapse” and “Hedge against a falling dollar”.

     Important: Get more information in my free Special Report about emerging market currency investing.

         Investors should seek independent financial advice.