The Almighty Dollar

a cura di di Walter Snyder, Swiss Financial Consulting

The US dollar is overvalued. The US national debt is 104% of GDP, and the annual balance of trade deficit is over $500 billion. Despite these figures, there are many who consider the US dollar a safe haven currency, and the dollar is holding up in the FX markets. The explanation for its strength is that the US is the world`s largest and strongest economy. In fact US companies are holding large amounts of dollars abroad and avoid sending the money back to the US, where they would be heavily taxed. The oil market is still mostly funded with dollars, and so there is continuous demand for the currency. The strength of the US dollar has meant that companies and countries that borrowed heavily after 2008 now find that their debt burden has become heavier due to their own currencies loosing in value against the greenback. Even so, the mismanagement of funds at the governmental level has seriously jeopardized the entire world economy.

The various stages of QE in the US resulted in a large amount of dollars being pumped into the economy without bringing about ruinous inflation due to the large amounts of capital destroyed in 2008, the slow economic recovery and the low interest rates of the Fed. The US caused a dangerous economic crisis by peddling billions of dollars of toxic paper, bailed out its own companies, then flooded the market with liquidity and thereby became even richer in terms of fiat currency by inflating the prices of equities. It almost seems as if it was planned in advance.

The present global economic situation, as already pointed out in this Newsletter, is unprecedented, and now central banks have resorted to negative interest rates in an attempt to jump start growth. The deflation brought about by low and negative interest rates conjoined with low oil prices due to the fracking revolution and producers reactions to it has foiled central bankers` efforts to achieve an inflation rate of 2%, which has been evoked as an ideal to be striven for. Why 2% should be any better than 3% or more or less is equivalent to predicating the belief that central bankers know better than anyone else what the cure for the global malaise might be.

Achieving balanced budgets seems to be beyond the capacity of politicians` skills. The case of Japan is a forerunner of catastrophe and collapse. Will the US follow Greece, Italy and France into insolvency? How long can a gold market survive when one physical ounce backs 583 paper contracts? “O tempora, o mores!”

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