ECON 101 Question : how much is US Dollar overvalued/undervalued? And Why?

You would assume that the dollar is valued properly by the markets. The dollar is strong now because other nations can lock in a 'risk free' 6% return investing in a portfolio of us bonds. With war going on in Europe the dollar is also a safe haven investment. Both of these factors create high demand for $ and drive the price up v. other currencies.

Dollar is as weak as The Fed wants Dollar to be. Dollar is as weak as The Fed wants until The Fed sends people on U.S. government payroll on t.v. or have their partners in M.S.M. bash China for pegging Yuan too much to Dollar. Markets? No. Strong Dollar means exports are relatively too expensive.

If fed wants a weak dollar they lower rates, which ain't happening at the moment. Chinese gov't cares no more what US asks for, party leaders set exchange rate. You are right that a strong dollar hurts exports, but heh, it's great for tourists traveling abroad.

The dollar is never strong when inflation is high.

Pretending the dollar is strong because the euro is tanking too isn't a very good metric.

The $ just came off a 22 year high in early December and still trades well above historical average. That is definition of a strong dollar. M

As mature nation economies grow at a slower rate, most mature economic nations take measures to weaken their currencies in an attempt to stimulate their economies.

* Need to look at value of USD against each currency.

* Need to look at value of USD against agriculture commodities.

* Need to look at value of USD against precious metals, specially gold.

Go back 100 years and you will see USD is weak versus gold. If you are only looking at Dollar v. British Pound &/or Dollar v. Euro &/or Dollar v. Yuan, you are not going to get the full picture.

I'm looking at usd index vs basket of foreign currencies (USD index) that goes back to Bretton Woods. Where a currency is here defines strong or weak.

Gold right now at $2000+ is also historically strong reflecting Ukraine war, residue of Brexit, uncertainty in US economy (both recession and silly debt ceiling), and uncertainty in global economy.

You can have a strong dollar and a poor performing economy, but definition of strong/weak dollar based purely on exchange rates.

On inflation, still high at 5%, but trending back down after war oil price scare and a host of corporate price increases. 5% still high but nowhere near high enough to cause currency devaluation. Most countries would be thrilled with only 5% inflation, see Turkey, Argentina.

So strong dollar despite 5% inflation.

Yes and it's a useless metric for anyone spending their dollars in America.

The dollar being strong in Berlin isn't very helpful to people spending $5 for a dozen eggs in New Jersey.

Strong dollar is a defined term like college graduate or Porsche top end speed.

If college grad can't get job, or Porsche stuck in jam it doesn't change those definitions.

Your high egg price is due inflation and apparently an egg shortage, and has absolutely nothing to do w/ strength of the dollar. (unless you are importing eggs)

I think you're completely missing the forest for the trees.

The strength of the dollar and inflation are related.

Inflation is a rise in prices which is a reduction in purchasing power. Arguing that the dollar is strong while inflation is high is absurd. If the dollar was strong in America purchasing power in America wouldn't be reduced. Yet it is. Most Americans don't spend Euros at the grocery store. They do not care that they can afford more Euros today than they could 5 years go they care that they can afford less groceries than they could 5 years ago with the same amount of dollars.

I Give up after this. By convention and definition strong/weak are defined terms to describe currencies vs other currencies. THey are not used to describe the purchasing power of the dollar in the home country, those terms are inflation and deflation.

The dollar is overvalued argument is based on a now decades old argument that Fed monetary programs like quantitative easing, etc. expand the money supply and will eventually cause hyperinflation and the demise of the dollar. That never happened and the fed, to date, has been able to successfully unwind these programs without causing hyperinflation. Thus, there is no evidence that amount of USD in circulation alone will case the dollar to fall in value. Of course, that is not to say that MMT is the word of God and the US can print as much money as it wants. But so far, the dollar has held up against US debt and Fed monetary programs.

The more recent argument for the dollar being overvalued is that China is trying to replace the dollar in international trade and as a reserve currency. But with all the recent news about BRICs and others switching to using the Yuan in cross border commerce, the Yuan has been falling in value because of political risk concerns. And that really gets to the bottom of why the dollar is not going to be affected by the Yuan. There is no real alternative to the dollar. The Euro and pound have been beaten up by Brexit. China will never let the Yuan appreciate enough to harm its export markets. And while the BRICs and a few other countries have announced that they will shift to using the Yuan, anyone who has a choice in the matter (i.e. free market actors who are not controlled by authoritarian governments) is staying with the dollar because the US has a free capital markets. China does not. And China is throwing billions of Yuan at a country that may be headed to a disaster if it continues its disastrous war in Ukraine. The choice is pretty easy when you think about it. The dollar is currently strong against other currencies. US inflation is cooling while employment in the US is strong even though interest rates are high. Any recession in the US will be met by a drop in interest rates. By contrast, China's economy is largely based on a manufacturing sector that pays very low wages but subsidizes those wages by selling goods internally at a fraction of what they cost to other countries. And a strong Yuan just makes those exports more expensive and less competitive. China is also pouring billions of Yuan into Russia and does not have open and free capital markets. That political risk is really why the Yuan will never go anywhere. China's version of capitalism is largely based on a "heads we win, tales you lose" where foreign investment is only allowed to the extent it serves China's interests. If China had free and open capital markets, it would be an entirely different situation. But they don't. And that is why there really is no alternative to the dollar.

Yes, this is exactly what I mean by you're missing the forest for the trees.

You're citing definitions while completely misunderstand what the definitions mean in the actual world.

Yes the USD is overvalued. Many factors contribute. US GDP is a political instrument, inflated at least 5 times, perhaps 10 times it's actual international value. Given US GDP includes items not counted in other countries for example, trash pickup, sewage treatment, prisons, recycling, unemployment payments, military, etc.

Is the US dollar overvalued/undervalued compared to . . . ?

When the world realizes u r right, what will happen?