While today’s surge in December consumer confidence may have been interpreted as being good news, the weakening dollar continues to evidence the growing loss of confidence on the part of those doing the producing. As the dollar’s value continues to erode, today hitting a new record low against the euro, so too must the willingness of foreign producers to continue supplying American consumers.
While Wall Street continues to place great stock in meaningless statistics such as consumer confidence, analysts routinely ignore the far more important measure of producer confidence revealed in the weakening dollar. Consumer confidence presumes to measure the level to which consumers will continue borrowing and spending, rather then saving. However, as it takes two to tango, the leader in this bizarre dance is clearly the foreign producer/saver, who must intern be confident enough, or foolish enough, to lend.
Although the consumer confidence data caused a rally in the stock market (another speculative and subjective indicator) foreign exchange markets were unimpressed. The fact that the dollar failed to rally, which in the past it typically has in reaction to such “strong” data, potentially revels a change in the way statistics indicating stronger consumer led GDP growth are perceived. Perhaps currency traders finally understand that borrowing more money to buy imported products, though temporarily propping up current U.S. GDP figures, actually diminishes future GDP, while immediately increasing downward pressure on the dollar, as such spending only exacerbates the trade and current account deficits.
If the world finally catches on to the fact that the U.S. dollar will continue to lose value, regardless of whether the economic data is interpreted as being “strong” or “weak,” no amount of consumer “bravado” will avert a global vote of “no confidence,” and the dollar crash, and ensuing recession, that such a vote implies.