Finance

Be Prepared for a Cheaper US Dollar

Be Prepared for a Cheaper US Dollar

It’s a mathematical impossibility. If one currency is going down against another, then the other must be going up. There’s no other way.

From January 2010 (when Obama launched the currency war) to August 2011 (when the US dollar hit an all-time low), the currency wars benefited the US at the expense of Europe, emerging markets and China.

This was considered necessary by the participants at the G-20 leaders’ summit in Pittsburgh in September 2009.

The US was and is the world’s largest economy. If the US could not escape the impact of the 2008 financial panic, no one else would, either.

In effect, the world would suffer stronger currencies while the US devalued to jump-start the global recovery.

After August 2011, the dollar was allowed to revalue upward while the rest of the world, especially Europe and China, was allowed to devalue so they could claim some benefit from a weaker currency.

This worked in the short-run, but the problem was that the US never returned to sustained growth at the prior trend of 3.25% growth per year.

Will it help Trump’s chances for 2020?

The US endured a long depression from 2007 until today, with annual growth of about 2.3%. Europe and China got a boost, but the US never pulled away from the pack.

Since then, it has been a matter of taking turns. The euro is allowed to depreciate to help growth and the banking system as the dollar gets stronger based on a slightly stronger US economy. But no major economy has solved the problem of achieving self-sustaining trend growth.

China has been free-riding the entire time.

There have been periods of a soft peg of the yuan to the dollar, but there are intermittent periods of a weaker yuan. China executed shock devaluations in August 2015 and December 2015.

Both times, US stocks fell 11% in a matter of weeks. China has just executed a 10% slow-motion devaluation over the past six months. US stocks have started to sink again.

Now Trump and Mnuchin are saying, ‘Enough!’ The Europeans will have to take their turn with a stronger currency and China will be penalised for their currency manipulation. A weaker US dollar is coming.

Whether this will be achieved with cooperation by the Fed or direct intervention by the US Treasury remains to be seen, but a weaker US dollar is the only way out of the US growth conundrum and debt debacle.

A weaker US dollar will give the US another growth spurt after the 2018 tax cuts to help propel Trump’s re-election prospects for 2020.

This article was originally published by The Daily Reckoning Australia

Since you’re here

We would like to ask you for a small favour.

Australian National Review’s community of readers and following is stronger than ever. However, advertising revenues across the media are diminishing, especially without a paywall. We keep our news free because as a non-profit, our focus is to make sure you are informed of the truth.

But running a news website has costs involved. We want to continue on our mission to enforce a free press, especially in this day and age where mainstream media and big corporations are going all out to suppress us.

At ANR, we are not affiliated with any big corporations, businesses or the government. All we care about is unbiased and truthful reporting. Also since Google is now censoring ANR and other alternative news sites due to Google wanting only Fake News promoted by Mainstream Media and the suppression of the truth .

As a non profit without supporters donations we can’t fund ANR.

Will you help us remain a force for good and expose corruption in media , Government and industry? By supporting The Australian National Review with just what you can afford, you can help us ensure that everyone has access to free press for years to come. CLICK HERE TO MAKE YOUR DONATION.

Back

Search

What are you looking for?