Bounty:Why a strong USD may crash the world economy

in usd •  27 days ago 

Explain why a strong USD is bad for the world economy to win the bounty

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@knircky has set 16.000 STEEM bounty on this post!
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It's more of a step by step thing. There is so much debt denominated in USD in countries across the world taken from governments and private companies. I case USD has massive gains compared to other fiat currencies, the business face sort of a death spiral

  1. More debt and interest is needed to pay
  2. Less profits or even losses for the companies
  3. Less funds for R&D, re-investing and lot less investments and new ventures in general
  4. The economy suffers. Growth rates go down. More unemployment or at least less free cash flow for expensive items/luxuries
  5. Less profits or even losses for the companies
  6. Eventual bankruptcies
  7. Less profits or even losses for the companies
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    IMO the USD will have to have some massive gains for this type of scenario to become real and actual wreck the world economy. A smaller versions of this scenario can happen in countries that get their currency massively devalues. But crashing world economy will mean USD will have to have massive gains compared to every other currency. Maybe right after WWII this was possible. But currently there are economies outside of USA that are strong enough to prevent such a massive spike.

The theory is mostly used to justify the inflationary BS to justify printing more money. It's not an impossible scenario. But it's mostly just Keynesian fear mongering. I don't see USD being strong enough to crash the world economy in any recent time.

The strong US Dollar means that all the US-denominated debt that the world has accumulated is more expensive to pay back. For instance, if I borrowed 10 Steem from you and the price of Steem went up to $2, it would be much harder to pay back. Those who earn in currencies other than dollars (or countries that print currencies other than the dollar) have to work harder to fulfill their obligations.

  ·  26 days ago (edited)

Sure, but at the same time since the US is a net importer this is great for all countries exporting to the us.

Are we saying foreign debt has a higher impact than imports?

Keep in mind that the world is consistently moving away from the dollar standard. They don't want to hold dollars anymore because the US has weaponized the SWIFT system so much. All the BRICS countries are moving away from using dollars. Even the UK created its own settlement system to get around SWIFT, and they're one of the US's closest allies.

The Strong Dollar Bad Argument is related to

  1. debt is denominated in dollars so it makes it harder for Non-US actors to pay off their debts, making it more difficult for emerging nations to grow
  2. strong dollar siphons away investment from non-US countries because it usually means there is a high interest rate differential in favor of the USD (this is the monetary "cleanest shirt in the dirty laundry argument")
  3. it hurts firms that export from the US (though US as a net importer so not too big a deal, I agree, but politicians may boohoo the strong dollar because it hurts key manufacturing interests in swing states)
  4. Last I saw, S&P500 earnings were about 45% foreign, so a strong dollar not so good for those earnings on a relative basis.
  5. Lastly, maybe you think dollar hegemony is bad? Because a strong dollar will only bolster that.

That's all I got. Interesting thought experiment.

Ur again looking at this from a us perspective. All i get is the dollar and commodities argument.

Naw man, not looking from just US perspective. Look at #1 and #2.

  ·  22 days ago (edited)

A strong dollar is not bad, much less for the United States. This is due to the policies carried out by Trump, it is no accident that the numbers are there, the reduction of taxes, the incentive for production, the increase in employment, greater economic growth, is a positive cycle not vicious.
If a country adopts positions that distort the economy, of course, a strong dollar will be bad.

For the most part, most financial transactions are dominated in US dollars, from trading oil contracts to issuing corporate debt, to countries issuing dollar denominated debt. So for example with Oil, foreign buyers have to pay more when the dollar strengthens thus leading to less demand.

Well, I am not bashing on the USD as after all, I do live in America and while we have a TON of issues it's still a great nation that I believe in. This being said, let's look at the other side of the coin.

First, with a strong USD we will see less tourism in the USD as it will be more expensive for people from other nations to come to visit. This will lead to a lack of cultural enrichment that happens when we have an open society of free-flowing ideas.

Next, we can say that with a higher USD, Exports from the US will cost more for other nations. This will stifle USD innovations but may boost innovations overseas. This also then makes USD companies that operate overseas also scale back as they will be making less, being based in the USD.

New markets that are based on the USD will have a hard time gaining traction as they will have to pay more to get started, so it could stifle new markets from starting.

Lastly, a strong Dollar inspired people to buy more things on credit, this then makes a BIG bubble that when it pops, drops the floor out on all those who used that credit causing a larger financial crash.

I see this is not just an issue with a Strong USD, but with any monetary system. It's like investing and putting all your investments in one company, sure its easy to manage.. but if that one thing goes down you are screwed. Best to have a wide and varied portfolio of assets, USD, BTC, ETH, PHP.

Well, them are my thoughts. I hope it helps!

All of this makes sense to me. But it seems all good for the world and bad for us.

So ur not explaining how the strong dollar crushes the world economy

There are 3 main reasons exported goods are badly affected, global commodities become more expensive and emerging economies find it even harder to compete. I have upvoted for you mate

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A strong dollar in the long run just continues to support the printing of unbacked currency. In theory, this is more debt than can ever be repaid which will only make things worst for the competitivenessnof other countries to trade with each other given that most foreign trade is in dollars.

Posted using Partiko iOS

But how does this negatively affect foreign countries?

Everyone exports to the us, so stronger $ just increases us demand which is great for the world

If strong USD , it help The backward country, willing to close the gap between the big powers, willing to agree with the world = its own country, that strong USD will cause the world economy to grow.

But now the strong USD, it only own , it hits other country to wealth itself, the world economy is naturally destroyed by it.

Because the dollar has credibility as no support, and the more it grows its taxes and percentages are higher, it is there when the other countries are indebted to acquire foreign currency.
Thus, the more the dollar estadounidense strengthens and the other currencies face a decline.

Because AMERICAAA
FUCK YEAH

@knircky, In my opinion USD is dominating currency in the world and already we are seeing that so many hypes are going on like US Markets will crash and so on. In my opinion if these hypes turns true then it will be a great setback for the World Economy too because we are living the times of Advanced Globalised Economy.

The world economy depends on the dollar. But its collapse is the greatest condition. Because all economies depend on it.

Friend you scratched me with that question hahahaha ... I think that each country should seek to have its strongest currency and in this way make its government more prosperous and its inhabitants happier, if other countries make bad economic decisions badly for them, each who should seek to grow.

The dollar is the strongest and most stable currency in the world. It can make a country in crisis fall or rise.

U sound like a bot

jaaajaa is strong very strong so much that here in venezuela we have the nerves of the end which dollar goes up jaaaaaaaa I'm not a bot

Because this "strong dollar" is backed by nothing and is in fact hugely in debt. Most us govt programs are bankrupt and have "unfunded liabilities" off the books which make it worse. So the dollar is a house of cards. It is also hooked into most other currencies, so it gets support. As long as it can be propped up, the game continues.

But now other reserve currencies of making their moves as well as crypto. So do they pull the rug out from the us? And then what? This is a new paradigm yet to be tested. But the us produces almost nothing and spends 50% of it's budget on fake wars. So maybe no one will miss it.

How does any of this have anything to do with the original question. It sounds like u just wanted to rant a bit

I think I answered the question exactly, @knircky. The "strong" dollar is a fraud.

Is it bad for the world economy?

  ·  27 days ago (edited)

I dont get why. Since US is a world exporter it should be good for china and eu and great for us consumer.

There are some economist that claim it would crash the world economy. Given that interest rates in US are high and US economy is strong the $ should rise unless FED cuts rates a lot.

So I am looking for some answers. Maybe oil, foreign debt and reserves

In most countries, whether large or small, and where there are no economic freedoms, and adopt policies that ditorsiones the free economy, there will be problems, although the dollar is strong, are the governments that adopt unfair policies such as socialist , which generate oligopolies and cause inequality with the excuse of distributing wealth.

A strong dollar is not bad, if the countries adopt correct economic policies and take advantage of supporting their currency with the dollars, the economy of those countries will not suffer, the recipe for failure has already been seen throughout history, and the recipe is the same of failure as we see in many countries, all because of the greed of men.

ok so, a strong dollar is basically US dollar is been trading so high or likely to be near the historical highs.

the major impact would be on multinational companies based in US coz now there products are gonna more expensive and they will experience a very low sales or negligible sales coz no one will pay more just for a brand tag if you can get the same thing in low cost.

second: I wee look globally, a majority of basic assets are rated in US dollar. At the prices of oil, gold, silver, and also with the digital assets will increase the demands will decrease and the accordingly the local prices will decrease in order to sell those goods to customers and i think a lot of people can't afford the basic aminites.

like if i earn 1000 INR a day means i can purchase two albums of DJ Khalid/lady gaga in a month. but if the US dollar increase then i can only purchase one albums.

well that's my point of view for US Dollar let me know yours in the comments.

@knircky

The sentiment of the world has changed. Globalization is redistributing goods and services. All countries are now attempting to modernize their society and allocate a more significant stake in this Brave New World.

A strong dollar is bad for economic reasons because of the sentiment. A strong dollar is not needed for the global market to trend upwards. However, a strong dollar may convince other countries to seek stronger measures to curtail the all-mighty U.S dollar.