Why the US is the safe haven of the G3

The rise of the dollar has as much to do with the failure of the other major economies within the developed world as it does with the underlying value of the US dollar as store of value.

The strong dollar value may have to do with FIFO economics. First into a recession, first out of a recession if the US can maintain an effective combination of fiscal and monetary policy. The US has been more aggressive with lowering rates and using a form a quantitative easing. There has also been a greater use of guarantees for parts of the shadow banking system. Fiscal policy was loosened in 2008 and has continued to increase at a breakneck pace.

The EU has some structural problems which make it more likely that any deep recession will last longer than other countries. First monetary policy has been less aggressive than the US or Japan. Banking problems are still developing in Europe especially with the growing issues in Eastern Europe. The problem in banking may be exacerbated because it is harder to coordinate across countries to solve intra-EU problems. Germany, to date, has not been willing to bail-out potential non-German bank failures.

Japan has seen significant export declines with a government which has been timid about aggressive new policies to stimulate the economy. Monetary policy has moved to easing, but it may be on a lesser scale than necessary.

Until the structural issues in the EU and Japan are solved, there will still be a flight to quality into the dollar.