Shortly after taking office, President Donald Trump announced that he thinks that the dollar is “too strong.” [1] This to me signals that he plans to weaken the currency by printing money. Trump must do this in order to fund the multiple projects and campaign promises that he made while running as a candidate. The United States currently spends more than it makes in revenue, because of this, all new spending mush be financed through debt. Raising taxes (at least to the extent to cover new spending) is out of the question since no one likes their taxes to go up. It is also politically unacceptable for a Republican administration to do this. This is the nature of politics.
Because of the nature of our economic system, this is the equivalent of printing money. Or rather, it is increasing the amount of credit in our economy. The increase of money and credit means a weaker currency. In a nutshell, this is how governments manipulate the value of their currencies, a term called inflation. It works to a politician’s advantage to finance his or her projects any way possible, because the national budget is only a concern of theirs for up to 8 years when their term ends.
Shortly after taking office, President Donald Trump announced that he thinks that the dollar is “too strong.” [1] This to me signals that he plans to weaken the currency by printing money. Trump must do this in order to fund the multiple projects and campaign promises that he made while running as a candidate. The United States currently spends more than it makes in revenue, because of this, all new spending mush be financed through debt. Raising taxes (at least to the extent to cover new spending) is out of the question since no one likes their taxes to go up. It is also politically unacceptable for a Republican administration to do this. This is the nature of politics.
Because of the nature of our economic system, this is the equivalent of printing money. Or rather, it is increasing the amount of credit in our economy. The increase of money and credit means a weaker currency. In a nutshell, this is how governments manipulate the value of their currencies, a term called inflation. It works to a politician’s advantage to finance his or her projects any way possible, because the national budget is only a concern of theirs for up to 8 years when their term ends.
We can tell that this has started already since the dollar has been under pressure in previous months. Since his Trump’s inauguration, the Dollar Index (DXY) has fallen from 103 in December of 2016 to 92 in December of 2017. These are lows that we have not seen since late 2014, when the dollar become the strongest that it has been in decades following the tapering of the Federal Reserve’s Quantitative easing program.
This will affect your life directly. When a government weakens its own currency, it’s the people who suffer the consequences. The price of everything rises in an inflationary environment with few exceptions. Specific items that will increase in price are anything that the United States imports: Many food items, items at Walmart and other retailers, car parts, razor blades, shoes, condoms, clothing, furniture, new electronics, and many more items US citizens buy daily. In response, other countries will need to devalue their currencies to the same extent the United States does in order to maintain their low cost advantage. Donald Trump is a hypocrite for blaming China for its currency devaluations since they are all prompted by the US in this way.
This will also hurt US citizens living abroad. The power to purchase things with Dollars relative to Pesos or other currencies is a luxury of US citizens. People from the United States have been enjoying this luxury for a while, which is why it is laughable when Trump blames people’s confidence in him as the reason why the Dollar is currently strong.
Notes:
[1]. http://time.com/money/4737106/donald-trump-us-dollar-too-strong/