Who in the world would pay $15 for a draft beer? Well the question is more, where would one pay such an astronomical price and why? The who is me. The where is Paris. And the why is the destruction of the purchasing power of the U.S. dollar courtesy of the Fed and the profligate folk in Washington.
When the Fed artificially lowers interest rates (see zero Fed funds rate), investors and savers lose their appetite for dollar-denominated holdings. And when the Fed guns the money printing presses, creating an excess of banking liquidity, international investors tend to flee the dollar. As such, a one-two punch is delivered, sending the dollar down versus hard currencies, like the Swiss franc, and trading currencies, like the euro.
The Great Money Flood
In France, a bistro bill is calculated in euros, and Americans must convert their dollars for euros. At an exchange rate of $1.44, an American is going to pay $14.40 for every 10 euros. That is quite a premium, is it not? I have come to think of a French draft Kronenbourg 1664 as a Bernanke beer. OK then, I am accusing the Fed of cheapening the dollar by depressing U.S. interest rates and flooding the American banking system with excess liquidity. You’ll know I am right when you see a pickup in the monetary base (high-powered money) and excess bank reserves. My charts indicate that these exact conditions exist. Read