I have been making a lot of comments about the US dollar, so I wanted to expand on my viewpoint. Enjoy.
The US economy is still the largest in the world and the US dollar is still the most powerful currency in the world. The US economy is very strong, the unemployment rate is 4.1%, the Federal Reserve continues to raise interest rates, US treasury yields are increasing, so why is the US dollar continuing to go down (rising interest rates are traditionally linked to stronger currencies, since higher rates attract investment).
It does not help that President Trump and his administration support a weaker US dollar. Trump’s viewpoint is a strong US dollar hurts US businesses to compete globally since US products sold abroad would be more expensive, thus affecting sales revenue. In addition, a weaker US dollar would decrease the trade balance and in the process jump start to US manufacturing and exports. Since President Trump’s residency changed to Washington D.C., the dollar dropped 12% in 2017 alone.
It doesn’t help that despite the growth in the US recently, economies elsewhere are performing even better. For example, the eurozone economy expanded by 2.5% in 2017, the fastest rate since 2007 and ahead of the 2.3% expansion the US in 2017. In particular, the Euro for instance is up by more than 15 percent from its December 2016 low and is now at a three-year high against the dollar at over $1.20.
However, few people are talking about the elephant in the room. The US Treasury controls the US dollar supply. The US Treasury issue bonds needed to cover our national debt. According to usgovernmentspending.com, the US ended 2017 with a gross federal debt of 20.21 trillion dollars. Under President Obama, the national debt increased by almost 8 trillion dollars in seven years. President Trump’s tax cut, along with his Infrastructure Plan will add another 5 to 7 trillion dollars of debt over the next 10 years.
The rising interest rate in the US doesn’t necessary reflect economic growth, but a loss of confidence in the US dollar and the creditworthiness of the United States. Higher interest rates will make the ability to service the federal debt more difficult. Legendary macro trader Paul Tudor Jones sent an investor update on February 2 which stated, “if I had a choice between holding a US Treasury bond or a hot burning coal in my hand, I would choose the coal. At least that way I would only lose my hand.” He later went on to say the Congressional Budget Office’s long-term projection for our debt/GDP will eclipse that of Japan at its peak, possibly making us the most indebted country in the world by 2033.
NOTE: Some Experts say when interest payments reach about 12% of GDP then a government will likely default on its debt.
The US debt falls into two broad categories: Intragovernmental Holdings and Debt Held by the Public. Intragovernmental Holdings. $5.6 trillion, almost 30 percent of the debt is owed to over 200 federal agencies like Social Security and Military Retirement Fund. The intragovernmental entities that take in more many than their expenses, buy U.S. Treasurys. The remaining 70% of the debt is owed to public holdings with foreign governments comprising of 43% of those public holdings.
Over half of all foreign currency reserves in the world are in US dollars. China, Russia and other countries have been making agreements to move away from the US dollar in international trade. At some point in the near future, China will become the world's largest economy. In 2009, China became Africa’s biggest trading partner and China is seeking to expand the use of Chinese currency in Africa. The United Nations continues to talk about an alternative to the US dollar as the reserve currency of the world. Last, but not least, within the next 20-30 months, the Great Depression of the 21st Century will be among us all.
The writing is on the wall. The US dollar as we all know it, will fade in the backdrop at some point. I believe we have seen the last time the US dollar ever reaches the $100 level. This might be a great time to start acquiring Bitcoin and other cryptocurrencies for your portfolio.
This is my personal opinion. I'm not a financial advisor. Please do your own research before trading.