Doomsayers Dead Wrong About Dollar's Decline

The dollar is hitting all-time lows vs. the euro on almost a daily basis. Even the Japanese yen, long the laggard in the currency world, is starting to catch a bid. Recent comments from Chinese officials about diversifying away from the greenback to "strong currencies" pushed the dollar's descent into overdrive, and seemed to want to drag equity markets with it.

This kind of market action has encouraged familiar warnings from those "bunker monkeys" who link the dollar's decline to dark visions of a disorderly global collapse.

But the U.S. dollar has been depreciating for about five years in pretty much linear fashion and is primarily a structural phenomenon, not a cyclical one. Moreover, even though the U.S. economy is clearly facing headwinds that are, if anything, likely to intensify, the greenback's decline, in and of itself, is not a symptom of U.S. weakness.

Instead, it reflects other countries finding confidence in their own currencies, and weaning themselves of excessive dependence on the dollar as the only international currency for their savings and transactions. In short, across the globe, individuals, companies, central banks and investors are de-dollarizing.

What we are witnessing is the unwinding of an overhang of dollars that has been built up in the global system over the last 60 years. And it could last for quite some time. The good news is that this wouldn't be happening if the global economy weren't in unprecedentedly great shape.

That said, I don't mean to suggest that some of the cyclical arguments commonly mentioned for the dollar's weakness don't carry some weight at certain points in time. Some of them do, but they tend to be grossly overstated, and many of the common reasons cited for the dollar's weakness are merely ex-post facto rationalizations for the price action - Thestreet.com