Four Factors Suggest U.S. Dollar Is Headed for Rigorous Decline
The U.S. dollar could be setting up to collapse. The so-called Greenback could plummet in value against other major currencies. That could create dire economic conditions for average Americans and drag down the U.S. economy.
Before going into any details, one question must be asked: How are currencies valued?
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You see, currencies are dependent on a few factors. For a currency to go higher, you want to see the underlying economy performing well, political conditions being stable, the government performing efficiently, and demand for the currency being widespread.
Sadly, when you pay attention to all of the factors that impact currencies, they suggest that the U.S. dollar is in very poor shape. The only thing holding its value up is confidence. Its fundamentals are deteriorating very quickly.
1. Dire U.S. Economic Data
Have you seen the economic data lately? As the Federal Reserve is raising interest rates, indicators are pointing to an economic slowdown ahead. We see the housing market struggling, Americans pulling back on spending, businesses turning pessimistic… the list goes on.
Mark my words, if this continues for long, it won’t end well for the Greenback.
2. U.S. Political Environment is Chaotic
As for political conditions in the U.S., they are anything but stable. We hear noise suggesting that the president of the United States could have literally won the election with the help of Russians. There are a bunch of investigations in place, and more could follow.
In the midst of all this, nothing is really moving ahead. Ask yourself this: Has anything major come out of Congress? It’s all talk, no action. This is not good.
Remember, political stability matters a lot when it comes to currencies. Don’t for a second think that this won’t affect the U.S. dollar.
3. U.S. Government Spending Without Remorse
The U.S. government continues to spend without remorse. Politicians can blame previous administrations all they want; the fact is, the U.S. national debt is starting to become a major problem. It stands at almost $20.0 trillion, and it is only expected to increase.
What happens when a national government’s debt goes out of control? The government usually defaults on its debt, which takes a huge toll on the country’s currency. We have seen this over and over in history. Debt shoots through the roof, the government can’t pay the debt back, it defaults, and the currency collapses.
So, it has to be questioned how long the U.S. government can continue to borrow without hurting the value of the dollar.
4. U.S. Dollar Demand Could Diminish
There’s an emergence of a currency that no one seems to be talking about: the Chinese renminbi. It’s gaining a lot of strength. According to the International Monetary Fund (IMF), at the end of 2016, renminbi amounted to $84.51 billion. This was the first quarter ever that the amount was reported. (Source: “Currency Composition of Official Foreign Exchange Reserves,” International Monetary Fund, last accessed June 22, 2017.)
Going forward, renminbi could get even more attention, and we could see countries ditching the dollar to buy renminbi instead.
Greenback Could Face Headwinds
Dear reader, when interest rates go higher, in theory, the currency should increase in value as well. This is not happening with the U.S. dollar, despite the Federal Reserve raising rates three times since December 2016. This is not good.
I continue to hold a pessimistic view on the dollar. As I see it, there isn’t much working in favor of it. To me, it wouldn’t be shocking to see the Greenback face severe headwinds. It could decline significantly, relative to other major currencies.
Here’s the thing: If the U.S. dollar sees a rigorous decline, it could have dire consequences for American consumers who are already struggling. They could suddenly find themselves paying more for goods and services, and we could see consumption tumble, which could then send the U.S. economy into a recession.
