THE DOLLAR WILL CRASH SOON
Over the past few years has dollar slowly started to lose in value, it even reached the lowest value in comparison to other fiat currencies. And current events are not showing that trend could change any time soon.
WHAT WILL HAPPEN IF THE DOLLAR CONTINIUES TO LOSE IN VALUE
It could potentially in my opinion lead to new world crises. Let me explain:
Firstly USA is not export driven economy. Meaning they import more that they export (they rely more heavily on import based economy than export). If they were more export oriented could the dollar’s fall in value at least boost their exports. But reduced value of dollar means that purchasing power of USA decreases and consequently can USA afford to import less and less goods. Which will not only hurt USAs economy, but also economy’s around the world since this economies would lose markets to sell their products.
Continuation of this trend can lead to global recession if we do not prepare for it. Hopefully we still have some time to prepare. Although USA will inevitable lose their role as a lead economic powerhouse.
WHY DOES THE VALUE OF DOLLAR KEEP FALLING
There are multiple reasons:
Firstly USAs economy is practically addicted to printing new money just to keep their indebted economy afloat. FED is printing money as there is no tomorrow not unlike Venezuela and Zimbabwe did and we saw where that lead them. More money simply means higher inflation (since it does not hold any real value in itself) when the supply of money (cash) is too high the demand for it drops.
Secondly the growing national debt of USA does not create trust in return as it joust to. And that means less investment and subsequently less demand for dollar and fall of its value.
Another reason is that money that comes in USA is taxed and that definitely drives potential the investors away.
And lastly USA is a country with slower pace of growth (something which eventually happens to every developed country) that just does not appeal to investors with risks as high as somewhere where a lot bigger profits are possible.
WHAT KEPT THE VALUE OF THE DOLLAR SO STRONG FOR SO LONG
Before recent past the dollar was pegged to gold so the gold kept its value(but quite irrelevant to my point in this post).
One of the reasons is that the county was in the recent past trusted as economically the strongest. There was a believe that everyone can earn a fortune if only he works hard and it had (quite) functioning democracy. Later it was (to some still is) hailed as a leader of free world. And people felt like they cannot lose money with investment in USA.
Throughout the past was national debt also fairly low in comparison other developed countries. Which also helped
But the main reason for dollar to keep its value in the last few decades was so called PETRODOLLAR. This is so called rule that every international oil transaction must be conducted in dollars. This practically meant that dollar is pegged to oil no matter how much of dollars are printed (similar to gold).
War in Iraq happened only because USA wanted to keep PETRODOLLAR (if you are interested in this check it yourself on the internet or follow me I will probably soon wrote a post about this) even though the so called official version is a bit different with a lot of excuses.
But it seems we are nearing the end of PETRODOLLAR because China just decided this week to conduct business with oil in their currency Yuan (CNY). And they cannot be intimidated by USA to back down
DOES USA DO ANITHING TO STOP INFLATION
They try it with FED raising the interests. But this can stop the trend only for a little while.
With the recent tax cuts especially the ones that make bringing profits of big corporations in USA so much easier and cheaper I thought that this could be the step in right direction.
But with the recent tariffs of imports and fear of trade war they (USA government) erased any glimpse of hope that tax cut provided.
Trump promised to keep the strong dollar, but he clearly is not very successful. Here is an Idea maybe stop printing money and stop borrowing money for reckless (military) spending.
CONCLUSION
Beware before investing in USA maybe they can keep the growth for another year or two. But be careful because the crash will be sudden. And definitely do not bet on strong dollar.
As for the rest of the world. We have to diminish the dependency on USA economy as fast and as much as we can in the time we have left before the crush.
DISCLAIMER
This is no financial advice, just my view on the market.
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