Here is the startling and somewhat frightening economic thought our research for the Inspired Investing course here at the farm unveiled.
Recently an EClub member asked me this question.
Question: When is the almighty U.S. Dollar going to sink? It is no wonder
that the US Economy is starting to falter. It is simply that no one on the
planet can afford to buy U.S. goods any more. It is as simple as that!"
Here was my quick response, that I kept in mind when I began my currency research for the current course we conduct this weekend.
“Actually the dollar is not strong, the yen and euro are weak. What has propped the dollar up is a lack of a better alternative. Japan's economy remains in a mess and the old boy network continues to resist change. No one has any trust of the euro as it is too new with no track record. Plus who trusts the Spanish, Italians and Greeks not to cheat? In addition most emerging currencies are at risk as well. Now that the big round the world emergence of third world countries into the global economy has taken place the big emergence is over and these emerging nations are structurally challenged now. They need political, economic, educational and productivity shifts to make the next big leap.
Watch for interest rate differentials to rise between the dollar and Euro. This is what would cause of a euro rebound. Otherwise watch a for a rise in gold which admits how sick the whole system really is.
As I studied the chart below I realized how totally dangerous the global currency position may be. Look at the huge US current account deficit, more than the rest of the industrialized world put together. Plus there is a huge monetary expansion of the dollar. Both of these factor suggest great US dollar weakness. Yet the real return between the dollar and the euro is not sufficient to attract investors there either. Where can investors go?
This state of potential weakness may be one reason why the US government just began issuing 4-week T-bills, the shortest maturity US government instrument. These bonds by the way are available in amounts as small as $1,000, but must be purchased through brokers.
What can all this mean? If no currency alternatives appear (such as a higher earning euro), then investors may flee toward commodities and inflation fighting investments. Inflation may hit the dollar while it remains strong versus all currencies. If so investments such as gold, silver and real estate make sense.
Country Currency Interest Interest Inflation Real Broad Money Current Budget
Year Ago Now Return Expansion Account Balance
Australia Dollar 6.22% 5.05% 6.00% -0.85% 6.90% -12.9 0.1
Europe Euro 4.84% 4.48% 3.00% 1.48% 5.40% - 0.3 -0.6
Britain Pound 6.09% 5.14% 1.90% 4.00% 7.40% -19.2 1.2
Canada Dollar 5.64% 4.12% 3.90% 0.22% 6.20% 22.2 2.6
Denmark Kroner 5.77% 4.93% 2.30% 2.70% -6.90% 4.3 2.3
Japan Yen 0.11% 0.01% -0.50% 0.15% 3.20% 102.9 -4.3
Sweden Kroner 4.04% 4.30% 2.70% 2.01% -1.40% 5.7 3.6
Switz. Franc 3.46% 3.27% 1.60% 1.63% 3.60% 28.3 N/A
USA Dollar 4.84% 4.48% 3.20% 1.26% 11.30% -446.3 2.1
Tomorrow we look at emerging market currencies. Until then, good global business and investing!