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Dollar Crash Imminent: True Or Rubbish?

Dollar Crash Imminent

The French Finance minister; the one-eyed man in the land of the blind states that a dollar crash is imminent

The era of the US dollar’s “exorbitant privilege” as the World’s primary reserve currency is coming to an end. Then French Finance Minister Valery Giscard d’Estaing coined that phrase in the 1960s largely out of frustration, bemoaning a US that drew freely on the rest of the World to support its over-extended standard of living. For almost 60 years, the World complained but did nothing about it. Those days are over.

Already stressed by the impact of the Covid-19 pandemic, US living standards are about to be squeezed as never before. At the same time, the World is having serious doubts about the once widely accepted presumption of American exceptionalism. Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness. The balance is shifting, and a crash in the dollar could well be in the offing.

Lacking in domestic saving, and wanting to invest and grow, the US has taken great advantage of the dollar’s role as the World’s primary reserve currency and drawn heavily on surplus savings from abroad to square the circle. But not without a price. In order to attract foreign capital, the US has run a deficit in its current account — which is the broadest measure of trade because it includes investment — every year since 1982.

Yawn what a tedious argument, all talk and no action. One could have made the same claim decades ago, and yet the dollar reigns supreme.  There are so many flaws with this argument that this chap would be better qualified for the post of janitor than finance minister.  Everything stated is true in regards to the US abusing its power due to the world reserve currency status the dollar enjoys. However, what currency is going to replace the dollar. The Euro, or the Yuan, both are equally shaky as the economies in both regions are far from healthy. Moreover, most of the World is not ready for a replacement, and the trillion-dollar challenge is that if these nations sell their dollars and move into another currency, the value of the dollar will plunge and in doing so the reserves of all these countries will drop significantly. The collapse of the dollar without a valid successor will lead to a crisis that will make the 1929 crash look like a big party. Market update June 12, 2020

Now what all these comrades fail to consider is that the US is the leader in almost all the key industries. AI, robotics, Social Media, Weapons production, Semi-conducting, etc., etc. Having the biggest guns and all the top players in the AI sector, the US is in a position to dominate the future in an array of the most powerful industries. The US controls the media sector, the AI sector, and it has the world’s most powerful army. Oh, let’s not forget that the US dollar is still the World’s reserve currency, so sadly it’s game over before even a bullet is fired. 

On a side note, let’s not forget what happens to those that challenge the Fed. Roughly this is what occurred

On June 4th, 1963, JFK ordered the printing of Treasury dollar bills instead of Federal Reserve notes (Executive Order 11110). He also ordered that once these had been printed, the Federal Reserve notes would be withdrawn, and the Treasury bills put into circulation. A few months later, on November 22nd, 1963, he was killed in broad daylight.

Once again indicating that a good Samaritan always ends up as a dead Samaritan. Trying to help the masses always leads to a negative outcome. A look back at history clearly illustrates that outcome is almost always negative when someone goes out of their way to help the blind and the deaf, AKA the crowd. How do you help the crowd, when they don’t even know what the problem is?

Dollar Crash we don’t think so: what is the fate of the dollar?

The dollar by logic should drop as the Fed is pumping out insane amounts of money, but let’s not forget that the Fed has forced almost every other nation to take the same route. Now another argument that one could make is that the US debt is just too high. Well, that argument could have been made decades ago. Once upon a time, the deficit was less than a billion dollars.

Around 1901 the total debt was 4.1 billion dollars, hence in comparison, today’s debt is already insane. It all comes down to perspective. We now live in an era where the masses are asleep; in fact, they are in a deep coma. Hence, as we have stated before, they are unlikely to notice anything until the debt touches the 100 trillion mark.

The US dollar is trading in a wide channel formation. Notice that when Greenspan increased the money supply, instead of the dollar losing its value, it surged, so there goes the hard money argument. The most illogical analysis would be to suggest that the dollar is building a base to rise to new highs: that would be utterly preposterous. And, that is why this outlook is more likely to come to pass than the one that states a dollar crash is all but imminent.

In the intermediate time frames, the dollar is likely to continue consolidating. Currencies such as the Oz dollar and loonie should outperform the USD, but if one factors the gains one can lock in the US markets, the profits might not amount to anything unless you are investing in equally strong stocks in Canada or Australia

Having said that we expect the dollar to bottom out and trend higher after the current consolidation is over. A monthly close above 105.00 will pave the way for the dollar to test the 116.70 to 118 ranges with a very strong possibility of trading to or past 120.00. Everyone forgets the impact AI, and AI-related technologies will have on earnings going forward, and the US dominates this sector. Let’s not forget the Medical industry, especially the biotech sector, where AI is going to be used to create a host of new life extension therapies. All in all, the dollar is toast story that’s been broadcasted for over five decades, is getting old. Sadly the odds of the gold bugs having their day in the Sun are quite slim.

For them a day in the Sun means Gold surging past 5K and at this point, we can’t see Gold trading past 2.5K and this is an extreme target. Precious metals, when examined from a long-term perspective, will continue to trend upwards, hence allocating a portion of one’s cash to bullion is fine, but betting the house on this sector is an indication that one might require shock therapy.

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