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January 2018
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Is the US dollar collapsing?

                The USD is down against nearly all currencies today as talks around the world favor creating an alternate to the USD as the reserve currency.  The currency trend was at least broken today as the dollar weakened against both risk avert and risk favoring currencies.  For example, the dollar opened down 1.17% versus the Euro, AUD, and CAD, while it also opened down 0.90% against the YEN.

                The response by the US stock market to the devaluation of the dollar has recently been lackluster.  You usually can expect a slight move down or up in the currency market to cause a significant move in the equity market.  We haven’t seen this happen today.  A 1% drop of the dollar should of have caused a big pop for the stock market.

                There can only be two possible final outcomes to the current global economic situation.  On one hand, the rest of the world can lose trust on the credit of the dollar not just because its GDP will lag behind the rest of the world but because of its ultra low interest rates.  This would cause a push to trade commodities and reserves to be held in a currency outside of the dollar causing the US to freefall leading to hyperinflation.  On the other hand, foreign equity markets will be so overbought that its interest rates will have to move significantly higher to encourage investors to remain in its local currencies.  This would cause an eventual recession in emerging markets bringing the global economy to another correction.  The only difference is that the US would be leading the world out of the second and deeper recession.

                There is a third temporary outcome not mention above that will eventually come to an end.  This is the outcome that the bankers around the world are betting on.  They believe that they can manipulate the global economy enough with printing currencies and controlling interest rates to walk an ever shrinking stability line between emerging markets and the US.

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