Is the American Dollar really going away?

[Car-Guy]

Reading about US/World history, the times we are living in are actually pretty good as compared to the past, not perfect by any stretch of the imagination but nonetheless pretty decent. Of course being inundated by the 24/7 news cycles of 95% bad and worrisome news does tend to skew one's view of reality, not to mention how warped social media is. That said, I still believe the United States best days are still ahead of us.

Pretty much agree, except maybe for the last sentence.

 

[pb4uski]

I'm going to give that a "plus one" although somehow we have always (in my lifetime) seem to keep our head above water and remain on top...

in spite of ourselves!

 

[marko]

Of course being inundated by the 24/7 news cycles of 95% bad and worrisome news does tend to skew one's view of reality, .

And there it is! I joke that I watch the evening national news "so that I have something to keep me awake all night".

 

[MichaelB]

Just trying to understand here. You're saying that Germany, Netherlands, and Switzerland "repress their domestic labor [by not allowing] their export income to recycle into their local economy"? Could you elaborate on that?

Sure. Let’s take Germany as an example.

Beginning in the early ‘90’s, Germany begins to limit average wage increases to less than inflation. Real wages fall. Between 1990 and 2007 the share of GDP going to labor falls from 68% to 59%. Production increases, but because the cost of labor is falling, domestic demand does not grow along with it and the increased production is surplus, and exported. This is a deliberate policy.

The exports generate export income in foreign currency. Typically this money would be converted into local currency, and the lions share would go to labor, which in turn would import goods to consume. Because domestic demand has been artificially constrained, however, the money instead becomes a return on capital. The recipients of this are business and investors - the owners of capital.

Capital has only 2 uses, it becomes either savings or investment. This is a core economic principle. In this case, what should happen is the foreign exchange is converted into Euros, the new increased demand for Euros should lead to its appreciation vs the US$, which in turn should make imported goods less expensive, which should lead to increasing imports and declining exports, and make the trade surplus go away. It doesn’t happen.

What does happen instead are 2 things. First, the foreign exchange is sold, but not on the open market. It is bought by the German Central Bank, who keeps it, and buys US Treasuries. When those Treasuries mature they are rolled over and never sold. This limits the currency from appreciating. Second, the excess returns on capital, now converted into Euros, are deposited into the domestic banking system. There is no demand for new investment capital, so it sits there as excess savings. With an excess of savings in the banking system, interest rates, also known as the price of money, fall. Remember the pre-pandemic era when German interest rates were negative? This is the cause.

The excess savings have no use in the domestic economy, so they are used 2 ways. The German Central Bank sells euro bonds to the banks and takes some of that excess savings out of circulation and puts it onto its own balance sheet. The rest is exported - sent overseas. The destination is the reserve currency country financial system, because that that’s the country with no restrictions on capital transfers, and the Central Bank monetary policy is to accommodate. That’s why so much foreign money is invested in US asset markets. They have no choice.

One of the factors that contributed to the Global Financial Crisis of ‘08 was all thus surplus savings looking for a home, which they all found in US mortgage debt. This is why many of the investors were European pension funds, insurers, and other institutional investors.

There are few options here. The only real “solution” is for the developed exporting countries to stop suppressing domestic labor costs and allow their domestic demand to grow, bring the economies back into balance. As long as this does not happen, imbalances will continue and increase.

 

[Born2Fish]

No.

What jim said...

 

[Delawaredave5]

So I asked Chat GPT - it doesn't know the answer, so no one does......

The US dollar has been the dominant reserve currency for many decades and it continues to play a major role in international finance and trade. As a reserve currency, the US dollar is widely held by central banks, governments, and other financial institutions as a store of value and a means of payment. This widespread use of the US dollar helps to support its value and stability.

If the US dollar were to lose its status as a reserve currency, it could lead to a decline in its value relative to other currencies. This could happen if, for example, there was a loss of confidence in the US economy or political system, or if another currency emerged as a more attractive alternative for use as a reserve currency.

In such a scenario, the demand for US dollars could decrease, leading to a fall in its exchange rate and a potential increase in inflation. This, in turn, could lead to higher borrowing costs for the US government and businesses, as well as a reduction in the US's ability to finance its trade and current account deficits.

It is important to note, however, that losing reserve currency status is a complex and gradual process, and the impact on the US dollar would depend on various factors, including the strength of the US economy, the political stability of the country, and the actions of other central banks and governments.

 

[mickeyd]

Like John Madden used to say, "Don't worry about the mule being blind, just load the wagon."

Keepin it simple for just shy of 80 years.

 

[Time2]

Some needs to inform those over on How much liquid cash do you keep...To empty out their mattress's soon!

 

[zippy2020]

Marketwatch allows a limited # of free articles, and this was posted by them 5 days ago. It's a pretty good wrap-up of how dollar fluctuations affect the market:
https://www.marketwatch.com/story/why-the-2023-stock-market-rally-may-depend-on-further-u-s-dollar-weakness-11675549559

The global financial system, in the end, works on trust. We, living in the USA, see our trustworthiness as becoming increasingly suspect due to a variety of factors. But the global system does not depend on how WE see the USA - it is based on how other countries view our reliability.

It is an obvious lesson of history that one cannot trust the tyranny of one-man rule. If for nothing else, once that man dies (or is assassinated, as so often happens!), succession often descends into chaos.

And chaos is NOT where you want your country's financial dealings to operate when dealing with other countries.

Here is a global trade secret (which is actually common knowledge but most people never realize its importance):

It is the U.S. Navy which GUARANTEES THE SAFE PASSAGE OF GLOBAL TRADE.

It is the U.S. Navy which allows Russian freighters to sail to wherever/whoever will buy their oil, which is pretty much their only source of cash right now since personal incomes have crashed in Russia due to the war.

It is the U.S. Navy which allows Chinese ships to load cargo and take it all over the world. Which China needs because Xi's zero tolerance/lockdown decrees have devastated Chinese personal incomes.

Neither Russia nor China is capable of guaranteeing safe passage for their cargo ships. Period. They are, like every other country, completely dependent upon our navy to safely travel.

The U.S. agreed decades ago to maintain safe naval passage on a global scale, and we have never backed down from it nor has any president ever been stupid enough to even hint of canceling it....because it would truly send global trade and then the financial system into a meltdown.

We are a net oil exporter. We are one of only 7 countries in the world who is a net food exporter. If there is going to be an Armageddon, this is probably one of the best places to be.

 

[deserat]

The biggest issue with the US$ losing reserve currency status is no other country wants it. At the risk of oversimplification, to be a reserve currency these 4 requirements must be met:

1) Have completely open capital markets with no restrictions on capital movements

2) Run a current account deficit and capital account surplus

3) Conduct a monetary policy that ensures global liquidity for the reserve currency, ensuring all legitimate global liquidity needs are fully satisfied.

4) The currency should hold a large share of global financial transactions.

China definitely does not meet any of the first 3 requirements, and its political system is not compatible with the first or third. The EU does not meet #2 and has no desire to do so. The oft mentioned SDR alternative meets none of the requirements.

In effect, the US will continue to be reserve currency until someone else steps up to bat and volunteers, and neither EU nor China have any incentive or desire to do so.

Thank you for laying out these conditions. I wander over to Zero-Hedge sometimes and see similar articles as the prepper site. I have wondered about some of the current world instability and re-alignments affecting the US Dollar as a reserve currency, ie, trustable for transactions and a store of value. I, too, have come to the conclusion that if that happens, there will be more important issues to deal with at the time with regard to survival.

Nevertheless, your list is a good one to be able to determine if the sufficient conditions are being met as time moves forward.

 

[SecondAttempt]

Just wondering what you guys think of this? Is there any truth to it or just hoax news?
https://www.askaprepper.com/death-of-the-dollar/

Any article conveying real information will start with a thesis statement and they lay out the argument and evidence to support the author's thesis.

I see no thesis statement, no cogent argument, and absolutely no evidence in this article. It is crap. Fearmongering.

Are there concerns about the US economy, dollar, and economic policies, of course there are. But what would you own if not dollars? Gold? Sorry, I know there are plenty of gold bugs but gold bullion would be useless in a serious crisis and collectible coins are simple ripoffs and scams. Euros? GBP? They are closer and more exposed economically to the first threat the guy mentions (Ukraine war). Maybe Yen? Renminbi?

I'll keep my money in US dollars thank you!

 

[SecondAttempt]

If OP wants to worry and prepare for something, consider natural disasters, especially the secondary effects.

Look at Turkey, the folks that survived the earthquake, will soon suffer from lack of electricity in freezing temps, no food, no water. The emergency workers are suffering the same as the people in the area, so they are of little help.

Both Turkey and Ukraine are developed countries. Turkey is in the EU and NATO. And look what happened. I don't want to point fingers but sometimes important things like building codes are vastly more important than finance and economic policies.

 

[SecondAttempt]

The problem is that 80% of the population potentially believe almost everything they read, rubbish or not. Probably why we are in the state we are.

This is especially problematic with certain groups. They get all their information from echo chambers that reinforce what they already believe. This is true of people both left and right politically. I got advice from a teacher when I was in junior high - "always read news from both sides and think critically before forming your own opinions" - If you are conservative, you owe it to yourself to watch CNN, MSNBC, and NPR for a reality check. If you are liberal, spend some time watching Fox News. And don't blindly accept what you hear from any single source. Engage your brain and form your own opinions! Question everything and everyone.

 

[SecondAttempt]

The oft mentioned SDR alternative meets none of the requirements.

I would have to brush up and could very well be wrong. But I thought SDRs were a construct of the Bretton Woods agreement and are pegged to the USD. Maybe this changed somewhere along the way when we floated the dollar vs gold in the 1970s.

 

[frayne]

This is especially problematic with certain groups. They get all their information from echo chambers that reinforce what they already believe. This is true of people both left and right politically. I got advice from a teacher when I was in junior high - "always read news from both sides and think critically before forming your own opinions" - If you are conservative, you owe it to yourself to watch CNN, MSNBC, and NPR for a reality check. If you are liberal, spend some time watching Fox News. And don't blindly accept what you hear from any single source. Engage your brain and form your own opinions! Question everything and everyone.

Exactly and throw into the process a little bit of non bias objectivity and bingo! But much easier said than done, especially in these days of 24/7 media overload.

 

[pb4uski]

...Engage your brain and form your own opinions! Question everything and everyone.

+1 It's just a shame that our Congresspeople can't do this rather than blindly following the party line and being pressured and influenced by party leaders.

 

[Gumby]

Marketwatch allows a limited # of free articles, and this was posted by them 5 days ago. It's a pretty good wrap-up of how dollar fluctuations affect the market:
https://www.marketwatch.com/story/why-the-2023-stock-market-rally-may-depend-on-further-u-s-dollar-weakness-11675549559

The global financial system, in the end, works on trust. We, living in the USA, see our trustworthiness as becoming increasingly suspect due to a variety of factors. But the global system does not depend on how WE see the USA - it is based on how other countries view our reliability.

It is an obvious lesson of history that one cannot trust the tyranny of one-man rule. If for nothing else, once that man dies (or is assassinated, as so often happens!), succession often descends into chaos.

And chaos is NOT where you want your country's financial dealings to operate when dealing with other countries.

Here is a global trade secret (which is actually common knowledge but most people never realize its importance):

It is the U.S. Navy which GUARANTEES THE SAFE PASSAGE OF GLOBAL TRADE.

It is the U.S. Navy which allows Russian freighters to sail to wherever/whoever will buy their oil, which is pretty much their only source of cash right now since personal incomes have crashed in Russia due to the war.

It is the U.S. Navy which allows Chinese ships to load cargo and take it all over the world. Which China needs because Xi's zero tolerance/lockdown decrees have devastated Chinese personal incomes.

Neither Russia nor China is capable of guaranteeing safe passage for their cargo ships. Period. They are, like every other country, completely dependent upon our navy to safely travel.

The U.S. agreed decades ago to maintain safe naval passage on a global scale, and we have never backed down from it nor has any president ever been stupid enough to even hint of canceling it....because it would truly send global trade and then the financial system into a meltdown.

We are a net oil exporter. We are one of only 7 countries in the world who is a net food exporter. If there is going to be an Armageddon, this is probably one of the best places to be.

It has been centuries, not just decades.

What many people don't know is that the US Navy was founded specifically to guarantee safe passage of merchant shipping in the Mediterranean. Yes, there was a navy in the American Revolution, but it was disbanded after the Treaty of Paris was signed in 1783, with the last ship sold off in 1785.

However, by 1794, the predations of the Barbary pirates had become so bad that Congress passed the Naval Act of 1794, establishing the US Navy and directing the construction of six heavy frigates, including the famed USS Constitution, which remains in commission to this day up in Boston.

Ever since, freedom of the seas for everyone has been one of the primary missions of the U.S. Navy. Until WWII, we shared that task with the Royal Navy, but now it's just us.

 

[Major Tom]

I like Jim Rohn's saying of stand guard at the door of your mind.

If you're reading a website with the word "prepper" in the name, my first thought was that maybe this is not the best way to "stand guard at the door of your mind", especially if you're not balancing it out with perspectives from other sources.

 

[tutan]

Marketwatch allows a limited # of free articles, and this was posted by them 5 days ago. It's a pretty good wrap-up of how dollar fluctuations affect the market:
https://www.marketwatch.com/story/why-the-2023-stock-market-rally-may-depend-on-further-u-s-dollar-weakness-11675549559

The global financial system, in the end, works on trust. We, living in the USA, see our trustworthiness as becoming increasingly suspect due to a variety of factors. But the global system does not depend on how WE see the USA - it is based on how other countries view our reliability.

It is an obvious lesson of history that one cannot trust the tyranny of one-man rule. If for nothing else, once that man dies (or is assassinated, as so often happens!), succession often descends into chaos.

And chaos is NOT where you want your country's financial dealings to operate when dealing with other countries.

Here is a global trade secret (which is actually common knowledge but most people never realize its importance):

It is the U.S. Navy which GUARANTEES THE SAFE PASSAGE OF GLOBAL TRADE.

It is the U.S. Navy which allows Russian freighters to sail to wherever/whoever will buy their oil, which is pretty much their only source of cash right now since personal incomes have crashed in Russia due to the war.

It is the U.S. Navy which allows Chinese ships to load cargo and take it all over the world. Which China needs because Xi's zero tolerance/lockdown decrees have devastated Chinese personal incomes.

Neither Russia nor China is capable of guaranteeing safe passage for their cargo ships. Period. They are, like every other country, completely dependent upon our navy to safely travel.

The U.S. agreed decades ago to maintain safe naval passage on a global scale, and we have never backed down from it nor has any president ever been stupid enough to even hint of canceling it....because it would truly send global trade and then the financial system into a meltdown.

We are a net oil exporter. We are one of only 7 countries in the world who is a net food exporter. If there is going to be an Armageddon, this is probably one of the best places to be.

Hmm.. How is that even doable? Are there navy ships stationed/sailing in every corner of the world? Or maybe nobody dares to bother Russian or Chinese ships ..not counting countless ships from other countries.

 

[frayne]

Hmm.. How is that even doable? Are there navy ships stationed/sailing in every corner of the world? Or maybe nobody dares to bother Russian or Chinese ships ..not counting countless ships from other countries.

It's all about capabilities, carriers and the ability to project force.

 

[Markola]

Interesting how this discussion keeps linking the viability of the backing of the dollar as a global reserve currency with oil and US military force, not gold, which has had nothing to do with the dollar for half a century.

 

[Gumby]

The US Navy sends a message to two different audiences. The first are the true, stateless pirates who prey and have preyed on merchant ships of all nations. They are "hostia humani generis", the enemy of all mankind. Under international law, they can be taken, tried and punished by any nation. The second are the nation states that border international chokepoints and attempt to close them to shipping (of any nation, not just the US). The US Navy does not need to be in the immediate vicinity to send a message to either group that they should stop their actions or the men in the big gray ships will come and stop them.

 

[indiajust]

https://www.linkedin.com/pulse/part-2-two-part-look-1-principles-navigating-big-debt-ray-dalio/

Dalio's latest long winded missive is out. He sees a gradual decline of the dollar as inevitable. Whether that is an armageddon or not is up to the individual.

US politically militarized the banking SWIFT dollar and trade accounts. That kind of trick can only be played once. Demise of petrodollar is leading to reduction of dollar denominated finance over the coming decade. US is the biggest trade partner, but dollar finance is about twice that impact. The outcome is a dollar decline to rough parity between of trade and finance impact.

I don't think a shift from unipolar US empire trade to multipolar first among equals constitutes armageddon.

It will reduce US projection of power/war, enhance US labor competitiveness, and impair sovereign debt issuance/currency debasement. All good things.

From a retirement perspective, it will be an inflationary problem as returning dollars get spent in for goods and services. Stock markets and bonds don't do well in such environments historically.

My takeaway is that international diversification will become a necessary part of investing strategy, with risk of war/demographic contraction top of mind.

I am betting on 3-4X wage and price delta by 2031, 2-9X as outside limits, depending on what governments do.

Luke Gromen at fftt.com has a finer grained perspective on shorter term pressures, but it can get confusing fast considering the internal/external supply/demand for dollars.

 

[Gumby]

The US Navy sends a message to two different audiences. The first are the true, stateless pirates who prey and have preyed on merchant ships of all nations. They are "hostia humani generis", the enemy of all mankind. Under international law, they can be taken, tried and punished by any nation. The second are the nation states that border international chokepoints and attempt to close them to shipping (of any nation, not just the US). The US Navy does not need to be in the immediate vicinity to send a message to either group that they should stop their actions or the men in the big gray ships will come and stop them.

It just occurred to me that further explanation on this point may be helpful.

Let's start with the observation that the USA imports a simply astonishing amount of stuff from overseas. To the best of my knowledge, none of those oil tankers or huge container ships clogging our ports is US flagged or US crewed. In fact, the only US flag merchant ships are those engaged in coastwise shipping (up and down the coast of the US or out to US islands such as Hawaii and Puerto Rico) and that is only due to the Jones Act of 1920, which requires ships traveling directly between two US ports to be US flagged and crewed. Accordingly, it is in our national interest to ensure freedom of the seas to all ships, regardless of the flag under which they operate. Our economy needs the Suez Canal and the Strait of Hormuz to remain open and for the pirates off of Somalia and in the Strait of Malacca to be subdued.

 

[CaptTom]

...And don't blindly accept what you hear from any single source. Engage your brain and form your own opinions! Question everything and everyone.

Agreed, but allow me to add one thing. The problem isn't that a media outlet has a liberal or conservative perspective. Once understood, those can be taken into consideration. You can be biased without being dishonest.

The red flag is when the article, or even just the headline, includes inflammatory or emotionally-charged words. If the article makes you angry; if it stirs fear, uncertainty and doubt, it's likely trying to manipulate you into believing something that's either false, or more nuanced than they're telling you.

Exactly and throw into the process a little bit of non bias objectivity and bingo! But much easier said than done, especially in these days of 24/7 media overload.

Right. One trick is to look at a story from several different outlets and notice which ones leave out important details. Or don't cover the story at all. That'll tell you a lot about their commitment to the truth (or lack thereof.)