Why The End of QE is Bad For The Dollar and May Lead to Its CollapseSubmitted by Smaulgld.com on Tue, 05/06/2014 - 09:06
The end of QE was supposed to mean a stronger dollar. It hasn't. The dollar has been dropping for months since QE tapering was announced and started.
From August 2013:
The Printing Press is the New Gold Standard
The value of U.S. Treasuries has been maintained by the Fed’s willingness to print dollars to buy more Treasuries thus creating a non market $45 billion a month demand for such securities. Remove that demand and the price of Treasuries drops and yields rise.
Thus, the value of U.S. Treasuries AND the dollar have been backed by the Fed’s willingness to print dollars to support the dollar because if the U.S. Treasury market collapses, so does the value of the dollar.
Since the dollar's value is in part tied to the level of U.S. debt and the willingness of the Fed to monetize that debt via QE, a cessation of QE would undermine the value of the dollar.
With a decline in the dollar, values of hard assets like gold and silver that are not dependent on third party actions (like Fed intervention in the bond market) and with no counter party risks (like the creditworthiness of the United States) should rise.