Government’s Reckless Spending Could Result in Lower U.S. Dollar
If you think holding U.S. dollars is a great investment, think again. The case against keeping the greenback as an investment continues to get stronger.
Before going into any details, know this: a currency is only as strong as its government and economy. If both of these factors aren’t sustainable, the currency faces headwinds.
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As it stands, the U.S. government is relatively unstable and the economy is moving in the wrong direction. This is bad news for the U.S. dollar.
First, assessing the U.S. government…
The federal government is having a hard time getting its act together. It continues to spend without remorse.
The U.S. national debt stands at well over $21.0 trillion. For the coming decades, there isn’t really a sign of a balanced budget or surplus. The U.S. government is only expected to register deficits.
So, with ballooning budget deficits, the U.S. national debt could soar much higher. It’s not an out-of-this-world idea that we’ll see the national debt soar to over $30.0 trillion within a decade.
Right now, the U.S. federal government is the most indebted government in the world when looking at nominal value. No other government comes even remotely close to its $21.0-trillion figure. When the debt hits $30.0 trillion, will the creditors to the U.S. government question the country’s ability to pay that debt back?
Out-of-control spending by the U.S. government could be deadly for the U.S. dollar.
But this is not all. Over the past few years, the U.S. government hasn’t been able to get things done. There’s too much noise and deadlock. This is not good for the U.S. dollar either. The longer the standoff persists, the bigger the headwinds will be for the greenback.
Recession Ahead for the U.S. Economy? This Could Be Bad for the Greenback
Second, looking at the U.S. economy…
The economy had a solid run in the past few years, but there are risks brewing. A recession could be on its way in the coming quarters.
Just pay attention to the yields on long-term and short-term U.S. bonds. Whenever the difference between these yields edges close to zero, it’s one of the surest signs that a recession could be near. This difference in bond yield has predicted the last two recessions with great accuracy.
With that said, the current difference in yield between the 10-year and two-year U.S. bonds is awfully close to zero, at 0.21%.
U.S. Dollar Outlook: Don’t Ignore Gold
Dear reader, the two things that hold any currency together are saying that the U.S. dollar could decline in value in the coming quarters. It’s not sustainable at the current levels.
I really don’t think we will see a collapse-like scenario anytime soon with the U.S. dollar, but keeping it as an investment could result in gradual losses.
Also, I am paying close attention to gold. The yellow precious metal is a great hedge against currency depreciation. It could help investors preserve wealth as the U.S. dollar falls.
