How the debt is like the dollar

 IYKYK.

 

Larry Kudlow is back touting a non-existent booming economy just like he did during Trump's first administration

 This Is the Best 'Hard Goods' Boom in Decades

... Tuesday’s industrial production report showed back-to-back gains in June and July for both total production and manufacturing production. ...

Larry is rightly happy about the increase in the durable manufacturing index. 

No doubt about it, it is up, but notice that it is still not as high as it was in Trump 2018 or Obama 2014. 

More importantly, percent change in the index for 1H2026 was 1.94, lower than the 2.28 in 1H2018 when Trump was president the first time.

But this isn't an economic boom, and neither was that. 

Those are welcome highpoints but in a long-term trend all down hill since the 1980s when Reagan was president, and no one asks why.

Kudlow & Co. never go back in the data as far as they should, even though they served in the Reagan Revolution and touted the results for the economy of the posthumous JFK tax cut in the Revenue Act of 1964, which cut the top marginal rate from 91% to 70%.

Today they use these data sets which go back only to the beginning of 1972, but even at that there is a giant durable goods growth spike of 9.02% in 2H1983 which we have been unable to reproduce since then, which should make them ask themselves, What went wrong?, but it doesn't.

Socrates said that the unexamined life isn't worth living.

So let's examine it.

Robust post-war growth is a truism which is true!

Industrial production generally, and for manufacturing specifically, grew robustly year over year, and the trend for those growth rates was itself strongly positive, as the chart for 1948 to 1984 shows.

But look at what happens after 1984. 

You still get positive growth rates year over year, but not as robust as before, and the trend for those growth rates becomes strongly negative.

Something changed in the 1980s to cause this.

I say it's the Reagan Revolution in ordinary income tax rate reductions which caused this, not because tax cuts for rich people is bad, but because Reagan unintentionally sabotaged the tax rate arbitrage which before those tax cuts existed had pushed rich people for decades to make long term capital investments here at home in order to get low capital gains taxes in return.

In other words, Reagan destroyed the negative incentives which drove domestic investment. Take away the penalty of high ordinary income tax rates, and suddenly there's no reason to plow your money into the investments which drive business, jobs, and GDP, especially as enthusiasm for regulations of all kinds began to grow and hamstring profits. 

The new tax cut windfalls freed up a lot of money to seek return wherever it could be found, and in the aftermath of the Reagan era that money increasingly went abroad. For people who lived through it, the one persistent theme of the business news was one business after another closing up shop in America and moving production overseas. After China entered the WTO, the steady departure of businesses from America became a flood.

And that's why that last chart, for 1984 to the present, looks like hell.

It has nothing to do with the U.S. Dollar being the world's reserve currency either. That is the dumbest thing I've heard in years, and I can't tell you how amusing that is coming out of the mouth of a Yalie. I guess they don't teach 'em at Yale that the dollar was the world's reserve currency 1948-1984.

I am not an economist. I do not know how to wave a magic wand of policy to make it all right again. 

I am just a scholar in the humanities who wanted to know what turned my world upside down in 2007 and why I and millions like me have never recovered.

I have made a life for myself in spite of it all, as people do, but I tell you what, America was pretty great once, so don't tell me this is an economic boom.

I knew the economic boom. The economic boom was a friend of mine. And Larry, this isn't an economic boom.

 

 

Industrial production missed the consensus estimate yesterday, so they trotted out Larry Kudlow to tell you otherwise lol

 For month over month in July, the consensus estimate was for +0.3%. Instead we got +0.2%.

Meanwhile the big picture shows, like so many indicators, that industrial production hit the big brick wall of Reaganism in 1984.

Post-war industrial production grew handsomely and its growth rate trended upward from 1948 to 1984, but not after.

Why is that?

I think it's because the incentive to invest in domestic industry went away because of the Reagan tax revolution.

Up to that time, high ordinary income tax rates had pushed owners of capital to invest in America for decades because by doing so they could take advantage of relatively much lower long term capital gains tax rates when they wanted to take income. After the dramatic Reagan cuts to ordinary income tax rates, that arbitrage disappeared. From that time onward owners of capital, now flush with cash from taking income at low ordinary income tax rates year upon year, found it more advantageous to invest abroad where low labor costs and unregulated markets promised even more fabulous returns on investment as America hobbled itself with regulation at home. The exit of businesses of all sizes from the United States to East Asia which began from this time turned into a flood after China was admitted into the WTO in 2001.

But today J. D. Vance thinks the U.S. Dollar's status as the world's reserve currency is the cause of all our problems.

If you want to know what makes me despair, that's it.

The following news story was more accurate than Kudlow. 

US: Industrial Production Up Again in July as Modest Manufacturing Recovery Continues 

When the going gets tough, the weak have to sell their gold, or hinder its purchase

 As gold’s tumble continues, traders bet the pain may last for two more years

... “Turkey’s central bank is selling gold and buying dollars trying to support the lira, and the gulf nations – Qatar, UAE, Saudi Arabia – they need the money for the war so they’ve been selling gold, too,” Nigam Arora, founder of the Arora Report, said in a call. “At the same time, India’s raised duties on gold, and anyone who’s just watching charts, they had stops under $4,400 and had to start selling when it broke that level.“ ...       

Meanwhile in India . . .

Reserve Bank of India’s forex defense tool surpasses $110 billion as rupee slides 

The RBI's net-short dollar book has ballooned to record levels as India's central bank fights to stabilize a currency under siege from oil prices, geopolitical tensions, and capital outflows. 

India’s central bank is burning through an unprecedented amount of financial ammunition to keep the rupee from cratering. The Reserve Bank of India’s forward dollar-selling contracts have crossed the $110 billion mark, reaching an estimated $110-115 billion in early June 2026, a record for the institution’s net-short dollar book.

Think of it like this: instead of selling dollars from its vault today and watching reserves drain in real time, the RBI is writing IOUs to sell dollars at a future date. It’s a way to defend the currency now while kicking the reserve hit down the road. The problem is that the IOUs are piling up fast, and the road isn’t getting any longer. ...

India imports roughly 85% of its crude oil needs, making it acutely sensitive to energy cost swings. When oil gets more expensive, India needs more dollars to pay for it, which weakens the rupee.

The forward sales strategy itself carries a subtle risk. Those contracts eventually mature, meaning the RBI will need to deliver dollars at the agreed-upon future dates. If the rupee hasn’t stabilized by then, the central bank could face a situation where it’s simultaneously defending the currency in real time and settling old commitments. ...

Everything sold off today

Stocks were down across the board, with the NASD 100 notably down 4.77%. The equal weight S&P 500 is down 0.52% month to date.

The Tech sector was down the most on the day, 5.78%.

The Consumer Staples sector was up the most on the day, 1.64%, which looks defensive against a possible coming recession. The Utilities sector was up half that.

The U.S. 10Y yield rose to 4.55%, and the 20Y and 30Y yields rose above 5.00. YTD return for VUSUX is now down 0.85%.

Oil retreated 3%.

Metals were down across the board, silver down over 8%.

Crypto was down across the board, too, with Bitcoin falling below $60k.

But DXY climbed! +0.658 to 100.071.

The theory is investors are upset that today's "strong" jobs numbers (the 70k hospitality hires is probably World Cup related, a one off, so forget that) indicate easy money from the Fed is now absolutely out of the question, and maybe even a rate increase is coming because the economy is running too hot, which is silly with 1Q GDP at 1.6% annualized. CNBC called that "solid" lol.

Jokers say everyone's just raising cash to buy overpriced SpaceX in its IPO next week.

Investors are taking profits ahead of SpaceX IPO, says Capital Wealth’s Kevin Simpson

SpaceX is worth less than half of its $1.75 trillion IPO target, Morningstar says

Attention all you weak dollar lunatics

 Nominal broad dollar index average values

Obama II, first year // 1Q second year // April 2014: 92.75 / 94.51 / 93.99

Trump II, first year // 1Q second year // April 2026: 122.75 / 119.01 / 119.03

Thank you for attention to this matter. 

The total value of all foreign-owned U.S. Treasury securities is up 3.25% year over year in March 2026, and CNBC says Japan and China retreat from owning them

The big retreat was actually in the BRICS. 

The value of Japanese-owned UST is up 5.4% year over year in March, lol.

Meanwhile the value of official China-owned is down 14.8% yoy, but China notoriously owns UST through stealth mechanisms, often in the UK and Belgium where ownership is up 19% and 12.9% yoy respectively.

Hard to say what's going on there with the most trusted name in nothing.

Month over month in March 2026 the total value of all foreign-owned is barely down 1.5%, which is neither unusual nor indicative of much of anything. 

On a year over year basis, there were just five net "sellers" among the major foreign holders: China, Taiwan, Switzerland, India (down nearly 24%!), and Brazil (down 19%!). 

Officially anyway, BRIC of the BRICS raising hard currency for some reason lol oil.

Japan, China lead foreign government retreat from U.S. Treasurys as Gulf War stokes currency fears

Silver is still up 6.14% year to date, gold 5.09% even as energy prices march higher

 But SPX is up 8.02% ytd.

WTI is up 84.01% ytd.

VGENX is up 20.88% ytd.

 

Investment grade corporate securities:  

VWESX is down 1.54% ytd.

VFICX is down 0.65% ytd.

VFSTX is up 0.27% ytd.

 

US Treasury securities:

VUSUX is down 2.52% ytd. 

VFIUX is down 1.05% ytd.

VFIRX is up 0.16% ytd. 

 

Inflation:

CPI (CPIAUCSL) is up 3.77% year over year in April.

PCE (PCEPI) is up 3.49% yoy in March. 

 

Nominal Broad Dollar Index:

April: 119.03

1Q2026: 119.01

2025: 122.75

5Y: 119.94 

 

GDP, Compound Annual Growth Rate

5Y: 7.031% nominal, 2.775% real 

 

 

Why the world has the petrodollar, not a petroyuan

Don’t call time on dollar dominance just yet, say analysts as ‘petroyuan’ call sparks debate 

... “Oil is not priced in US dollars simply because the United States has long acted as the world’s policeman,” wrote Sonal Desai, Franklin Templeton’s fixed income CIO.  

“Oil exporters have a strong self-interest in getting paid in USD, because of what dollars represent: access to the deepest, most liquid capital markets in the world, backed by an institutional and legal framework that protects property rights and enforces contracts, supported by a strong, dynamic, and innovative economy.” ...

Franklin Templeton’s Desai added in the note that building the right infrastructure for a credible replacement, consisting of “deep markets, rule of law, full convertibility, a track record of macro stability”, takes decades, not years. ...

Desai added that the dollar’s recent weakness is simply a function of its characteristics. 

“Some dollar softness is perfectly consistent with global reserve currency status,” Desai wrote. 

“Unlike the renminbi, the dollar is a freely floating currency. It floats – up and down.”

 

 

Some foreign holders of U.S. Treasury securities are selling them to buy oil, which is denominated in DOLLARS, not in yuan

 Thank you for your attention to this matter.

DXY: 99.893 

Foreign central banks sell US Treasuries in wake of Iran war

 

CNBC doesn't mention that the dollar rallied in the last month along with bonds and gold

 Gold heads for seventh straight monthly gain on safe-haven demand

... The metal has climbed 6.5% so ⁠far in February, bringing gains for the seven months to a whopping 58%. ... The benchmark 10-year yield fell to a three-month low ‌on the day, decreasing the opportunity cost of holding non-interest-paying gold. ...

The New York Times on the global economy had me and then it lost me

Because it, like too many commentators, uses an obsolete dollar index in DXY, which measures dollar strength or weakness relative to just SIX currencies: EUR, JPY (!), GBP (!), CAD (!), SEK (!), CHF (!).

 

The Federal Reserve has developed broader indices weighted to the countries the U.S. trades with the most.

 

U.S. GDP is $31.1 trillion. 

EURO ZONE GDP: $16.5 trillion.

Japan: $4.3 trillion.

Great Britain: $3.6 trillion.

Canada: $2.3 trillion.

Sweden: $0.6 trillion.

Switzerland: $1 trillion.

Global GDP: $117 trillion.

 

 The Global Economy’s Warning Signals Are Broken

 

 ... It’s as if cars, instead of slowing down at a flashing yellow light as expected, started speeding up. ...

 

The traditional connection between the American economy’s performance and the value of the dollar has also been snapped. Uncertainty tends to increase the dollar’s value compared with other currencies as investors seek a safe haven in risky times. But the dollar has sunk to its lowest level in years. ...

 

Analysts backed down on their predictions that Mr. Trump’s tariff blitz last spring would cause higher prices ... 

 

Even by DXY standards, the dollar is not weak at 97, well within its long term average range between 95 and 105.

 

And The New York Times is ignoring that wholesale prices increased at a higher rate in 2025 than in either 2024 or 2023. 

 

Anyway, you know what happens when people ignore the flashing yellow:

 

Traffic fatalities surged during the COVID-19 pandemic. This research highlights the fact that disadvantaged communities bore the brunt of the increase and calls for holistic solutions to promote equitable access to safe transportation.

 

 

Yes, the dollar weakened in January 2026, but within a big picture environment of a strong dollar not a weak dollar

The nominal broad U.S. Dollar Index last averaged below 120 in December 2023.

Gold and silver climbed to all time highs in January 2026, defying the standard narrative that precious metals are the haven of choice when the dollar is weak. 

 

117.89 on Jan 30th

119.22 average in Jan 2026

Gold bug Peter Schiff's problem is that gold represented at best only about 18% of the value of total global international reserves, and that was yesterday before gold started this price plunge

"The dollar is going to collapse", he said.

"The dollar is going to be replaced by gold", he said.

Central banks "are getting rid of dollars", he said.

"They're getting rid of treasuries", he said.

None of that is true.

The nominal broad dollar index remains relatively strong. 

Even foreign official ownership of treasuries is up slightly year over year, shifting slightly from long dated securities to short, while total foreign ownership is up solidly. 

Meanwhile fiat currencies represented about 78% of the value of total global international reserves yesterday. The U.S. Dollar alone represented about 55% of the value, followed by the Euro close to 20%.

Gold is not going to replace the dollar.

But Peter will be happy to sell you some, especially today lol. 

 

The dollar is crashing is the stuff of hysteria

Chart showing US dollar crashing...

 

They do not remember 2008.

And they use an index, .dxy, which many now consider obsolete. 

The dollar is strong. 

 

 

Yet more gold and silver record highs this week in the strongest dollar environment in years: Gold to $4,887.82 per ​ounce on Wednesday, silver to $95.87 on Tuesday

 -- CNBC

But the media and the so-called experts prattle on about dollar weakness.

 

The dollar remained strong in Dec 2025 at the same time that the metals have been surging

 

Stories like this about China destroying the U.S. Dollar just make me want to howl

But hey, what do you expect from MarketWatch?

China quietly destroying the dollar...

... As more commodities get priced in yuan instead of dollars, demand for dollars softens. As central banks diversify into gold, they buy fewer Treasurys. As fewer foreigners buy U.S. debt, interest rates drift higher. As the dollar’s purchasing power erodes, everything you import costs more. ...

This, like most of the story, is a load of BS.

Global demand for U.S. debt is at an ALL TIME HIGH, a record $9.2 trillion in the last three months through October.

You'll know the yuan has replaced the dollar when the world buys Chinese sovereign debt instead of ours. And right now the world owns less than $300 billion of Chinese sovereign debt, billion with a B, not trillion with a T.

Nobody trusts China like they trust us. 

The writer, who owns gold and silver, wants you to dump long term bonds and buy short term bills and . . . gold and silver. Gee, what a coincidence. 

Meanwhile foreign governments continue to prefer long term U.S. Treasuries and own relatively few bills.

And the dollar is relatively strong, not weak as the writer says, in November 2025. 

click to enlarge

 

Year to date spot gold is up ~54%

By comparison, Total Stock Market Index VTSAX is up 14.83% ytd through yesterday.

Total Bond Market Index VBTLX is up 6.4%.

... The [gold] rally has been driven by a cocktail of factors, including . . . a weak dollar. ... -- CNBC 

Would these people know a weak dollar if they saw it?

Trying to explain gold like this is just silly.

The Nominal Broad U.S. Dollar Index is 120.51, down 7.4% from the January all time high of 130.21.

The all time low for this index was under Obama in July 2011, at 85.46.

You remember the summer of 2011, right? 

The dollar was at its weakest, America lost its AAA rating, and precisely net zero jobs were created that August, the first time since WWII.

We have a strong dollar today, not a weak one.

 

Oh yes, the poor, poor dollar, that old thing

Dollar heads for worst week since July; yen underpinned by BOJ