Donald Trump doesn't understand how currencies work

In Donald Trump's mind, the funniest thing keeps happening to the United States. Every time the economy begins to accelerate, other countries devalue their currencies.

"Every time we get going, China and others, they just knock the hell out of the value of their currency and we have to go back and back, and it just doesn't work, folks," Trump said at a rally Friday in Louisiana.

What he believes is a deliberate attempt by foreign conspirators is instead a basic fundamental demonstration of how markets work. It's not others that are devaluing when the US economy strengthens -- it's that as the US outlook brightens, the US dollar improves. Relatively, that makes other currencies appear to be weaker, but it's really an independent US dollar move.

Take the Chinese yuan, which Donald Trump singled out on Friday. Someone like Trump might look at a chart of the yuan over the past two years and see something like this.

After the US economy began to get a bit of traction in late 2014, the yuan began to weaken. In the past two years, it's down 10.44% against the US dollar.

But that doesn't begin to tell you the whole picture. Here is the chart of the Australian dollar over the same period.

In the past two years, it's fallen 10.18% against the US dollar, almost the exact same amount as the Chinese yuan.

Is Australia manipulating its currency too?

If they were, they would have to be part of a big club. The Canadian dollar, euro and British pound have all 'devalued their currencies' more than the Chinese in the same period.

Here is performance of major currencies in the past two years.

That's only the tip of the iceberg. Of the 31 most-trade currencies, virtually all of them are down against the US dollar in the past two years and the majority have fallen more than the Chinese yuan.

So either half the countries in the world have gotten together in a grand conspiracy to devalue against the US dollar, or the market is simply doing its thing and rewarding the US dollar for better economic prospects.

The risk is that Trump retaliates and actually manipulates the US dollar or creates some kind of stupid trade war over a problem that doesn't exist. That risk is growing every day.

"We'll renegotiate our trade deals, stop the product dumping and the currency manipulation which is a disaster for our country," Trump said Friday.