Due to the Coronavirus Pandemic and the simultaneous economic collapse, the government has printed trillions of dollars in order to prevent a societal collapse. It is hard to gauge just how much money the United States has printed out of thin air, but what is known is that the Federal Reserve balance sheet has increased by $3 trillion in just 6 months and the CARES stimulus package was $2 trillion.
This has led to a growing attitude in the government that out of control money printing is ok, and that the United States can print as much as it wants and get away with it.
Indeed, a $1 trillion stimulus package was proposed by Republicans this week, which is already an insane amount of additional money printing, and the debate in Congress right now is over whether this new stimulus package should instead be $3 trillion.
However, this insane money printing results in inflation, i.e. the devaluation of the USD, and it seems the Dollar Index (DXY) is indicating that the value of the USD is indeed declining sharply.
The Dollar Index is a measure of the USD’s value versus a basket of major foreign fiat currencies. Before the Coronavirus Pandemic the Dollar Index was steadily rising long term, and was trading between 97 and 100 before the economic collapse in March.
Initially the Dollar Index surged to 103 when the economy collapsed in March, as investors rushed into the USD as a safe haven. This Dollar Index rally perhaps emboldened the government to print as much money as they wanted.
Since then however the Dollar Index has been steadily declining, and is trading just under 94 currently. Equivalently, in only 4 months the USD has declined 9% relative to a basket of other major global fiat currencies.
Therefore, it is clear that the USD’s strength is showing cracks, and that the trillions of dollars of money printing is taking a toll on the USD’s value. Further, it seems likely that the absurd levels of money printing will continue for the foreseeable future, leading to more and more USD inflation.
On a final note, the devaluation of the USD is a positive force for the crypto market, since investors are more likely to move their money from USD into Bitcoin (BTC) in order to protect their funds from inflation