US Dollar Decline What Could We Be Headed For?

1. 82

   Sharlee01posted 3 years ago

   
   
   The dollar suffered losses last week and was headed toward its first monthly decline in five months. Time to worry or not?
   
   "Dollar Decline vs. Dollar Collapse
   Why a dollar decline is inevitable, and a collapse is unimaginable
   
   The U.S. dollar declines when the dollar's value is lower compared to other currencies in the foreign exchange market. This manifests itself as a decline in the dollar index. Generally, this means a foreign currency, such as the euro, can buy an increasingly large amount of dollars.
   
   A declining dollar can also mean a fall in the value of U.S. Treasurys, which drives up Treasury yields and interest rates. Treasury note yields are the main driver of mortgage rates. It can mean that foreign central banks and sovereign wealth funds are holding fewer dollars, too. This lowers the demand for dollars.
   
   Economic Effects of a Declining Dollar
   A weaker dollar buys less in foreign goods. This increases the price of imports, contributing to inflation. As the dollar weakens, investors in the benchmark 10-year Treasury and other bonds sell their dollar-denominated holdings.
   
   Contracts for oil and other commodities are usually denominated in dollars. As a result, historically, there has been an inverse relationship between the value of the dollar and commodities prices. Essentially, as the value of the dollar falls, the dollar-denominated prices of these commodities must rise to reflect their unchanged intrinsic value.
   
   On the plus side, a weakening dollar helps U.S. exporters. Their goods will seem cheaper to international buyers. This boosts the United States’ economic growth, which attracts foreign investors to U.S. stocks. However, if enough investors leave the dollar for other currencies, this could cause a dollar collapse. This is largely a theoretical consideration. The probability of this development is extremely low, as discussed in the closing section of this piece.
   
   Potential Causes of Dollar Decline
   In 2010, the Foreign Account Tax Compliance Act required foreign banks and other financial institutions to disclose information regarding income and assets held by U.S. customers.1 Its goal is to root out wealthy U.S. taxpayers who are hiding money offshore on purpose.
   
   Another aim of the law is to stop foreign banks from using tax evasion as a profitable line of business. Many people were worried that foreign banks would drop U.S. customers, to avoid compliance with the law, thereby pushing those banks away from dollar-denominated assets, which might lead to a decline in the dollar's value.
   
   On October 16, 2013, China allowed British investors to pour $13.1 billion into its tightly restricted capital markets. This made London the first trading hub for the yuan outside of Asia. This is one way China is trying to encourage central banks to increase their holdings of the Chinese yuan. It is the biggest potential threat to the value of the dollar. China would like the yuan to replace the dollar as the world's reserve currency. Were that to happen, the dollar would lose value.
   
   Since then, China has been devaluing the yuan against the dollar. It is doing so because its leaders are worried China's economy is growing too slowly. The devaluation objective is largely accomplished via the continual purchase of U.S. dollars by the Chinese central bank. Clearly, China’s actions have a significant impact on the value of the dollar.
   
   Recent Declines in the Dollar's Value
   The dollar declined 40% between 2002 and 2008. This was in part because of the $702 billion U.S. current account deficit at the time. Over half of the current account deficit is owed to foreign countries and hedge funds.
   
   The dollar strengthened during the recession, as investors sought a safe haven in comparison to other currencies. In March 2009, the dollar resumed its decline thanks to the U.S. debt.2 Creditor nations, like China and Japan, worried that the U.S. government wouldn't support the value of a dollar.
   
   Why not? A weaker dollar means the deficit will not cost the government as much to pay back. Creditors have been changing their assets to other currencies over time to stem their losses. Many fear this could turn into a run on the dollar. That would erode the value of your U.S. investments fast and drive inflation."
   
   Are we in the being of the perfect storm, that could lead to a deep recession or depression?
   
   The storm is building up steam week by week., and all the signs are there, with little to nothing being done to solve current problems that are adding to inflation. We are seeing shortages and continuous problems at our ports. Regulations on oil production have an oil industry dug in, and ready to stand their ground.  What are your thoughts, are we headed for more severe, and bigger economic problems?
   
   I  believe we are. And they're headed toward the US and the world like a freight train.

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2. 71

   Ken Burgessposted 3 years ago

   Build Back Better is an “L" shaped stock market as Biden de industrializes America and companies choose to re-domicile overseas.
   
   In 6 months unemployment will swing upward, energy prices will continue to rise, and the stock market will remain flat.
   
   The Fed persisted a long, flat bottom to interest rates because recent Fed Chairs followed and continued Bernanke's zero interest rate policy for over 14 years. 
   
   That went far too long and now we are paying the price for it. 
   
   Add onto that the Global Covid Lockdown, and then the Stimulus.
   
   Add to that the Biden stimulus which was really unnecessary and turned what would have likely been 5% inflation and a minor recession into 10% inflation and a major recession to come.
   
   At the end of the day its just economics and now Chair Powell has to deal with it, and his Fed Board is in the process of dealing with it.
   
   Back in 1999 the tech bubble was overheating the stock market.  Crazy valuations, way high versus historic PE ratios.  The Fed intervened and aggressively raised rates in a series of moves.  The market cooled and crashed.  So did housing.
   
   We are going to see the same things again, while adding to this a 70s like oil/gas crises and a serious challenge economically on the global stage from China.
   
   Things were going to be bad.... Biden has made sure they are going to be even worse... fortunately this will play out before the 2024 election so at least he and the Democrats will be stuck with the blame, which they should be... because their "leadership" the past year and a half has been putrid.

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