By Graham Summers, MBA
As I’ve noted in our last two articles, the $USD has begun a significant decline against most major currencies (the Euro, the Pound and the Franc). And the only reason it is showing relative strength against the Yen is because Japan’s central bank continues to ease monetary conditions.
What’s happening here? The $USD should be performing well based on interest rates as well as how far along the U.S.’s central bank is in its fight against inflation.
I believe what is happening is that the world is increasingly aware that the U.S. has become an emerging market.
Historically, the U.S. was held up as the eminent developed nation with strong and stable institutions, the Rule of Law, and a dynamic economy.
It is now clear that many of our most significant institutions in the U.S. are corrupt. And I’m not talking about the typical corruption one can assume from any organization involving people and power. I’m talking about 3rd world, banana republic levels of corruption, e.g. interfering with elections, jailing political adversaries, censoring free speech, etc.
Similarly, the Rule of Law in the U.S. is now more of a catch phrase than a reality. There are clear double standards applied on a local, state and federal level when it comes to the law. The politically connected/ chosen can commit everything from felonies to outright treason with little if any jail time. And in many cases, those involved in undermining their political adversaries even when it was illegal/ treasonous received book deals and prime time TV slots as opposed to going to prison.
Again, this the domain of 3rd world banana republics.
The U.S. economy has similarly entered a state of secular decline. The U.S. once was the manufacturing/ industrial capital of the world. It’s now a hollowed out, socialist economy that relies on other regimes (many of them hostile to the U.S.) for its resources and economic needs.
More and more Americans are paid simply to not work. Of those that do work, many take no pride in their efforts. It has become a running joke to post videos of goofing off at the office/ pretending to work/ faking productivity. Anyone who runs a business knows how hard it is to find committed, hard working people.
Perhaps nowhere are the above issues as obvious as in the U.S.’s financial status.
The U.S. now has a Debt to GDP ratio of over 120%. The government is running the largest peacetime deficit relative to GDP in history. Is the government trying to rein this in? Not in the slightest. The new Debt Deal removes all spending cuts through 2024.
Meanwhile, basic services (roads, bridges, etc) are crumbling. Go to any major U.S. airport or drive down any major U.S. highway and you’re looking at something that was a high quality/ top of the line project back in the 1950s.
Abject corruption, a lack of the Rule of Law, massive debt, massive deficits, crumbling infrastructure. These are the hallmarks of an emerging market. So is it any surprise that the U.S. dollar is behaving like an emerging market currency?
I’m not saying that other currencies/ economies are much better (if better at all)… I’m simply noting that the U.S. is far worse than ever before. On a relative basis, all of the things that made the U.S. an exceptional place are now of questionable quality/ credibility.
So why wouldn’t the U.S. currency be the same? Why wouldn’t the $USD become weaker, lose more and more purchasing power, and ultimately no longer serve as a storehouse of value?
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