One of my ongoing concerns is the future strength, or lack thereof, of the U.S. Dollar. As I am gravely concerned over the future level of the U.S. Dollar and the implications of such, I have written extensively on the subject of the U.S. Dollar and its vulnerability to substantial decline.
In this post I would like to highlight and summarize various fundamental issues concerning the U.S. Dollar. (For those interested, every month I have been posting long-term U.S. Dollar charts, including notable technical demarcations.)
For reference purposes, here is a monthly chart of the U.S. Dollar Index, on a LOG scale, since 1983 :
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
The current and ongoing characteristics of our economic situation are “textbook” (pre)conditions to substantially depreciate a currency. These (pre)conditions include, but are not limited to:
- Very low interest rates
- Truly outsized interventions (including “money printing”);
- Ongoing large budget deficits and deficit spending “as far as the eye can see.”
- Substantial federal debt; depending upon specific estimate used, at multiples of GDP when viewed on an accrual basis
- Many exceedingly large asset bubbles – and future implications
- An economic system highly vulnerable to financial instability
As I’ve discussed in previous posts, perhaps the main reason for the complacent attitude toward future U.S. Dollar levels is that the U.S. has never experienced substantial economic problems brought on by currency weakness. It appears as if many people will worry about a significantly lower U.S. Dollar if – and when – it occurs.
There are many problems with this approach. Based on various fundamental and technical analysis factors, I believe that should the Dollar fall substantially from these levels – as I expect – the decline will prove rather intractable – i.e. once it falls, it will stay lower and “reversing the slide” will prove very difficult.
A substantial Dollar decline will have many ill-effects, and will likely be akin to opening a “Pandora’s Box” of various economic and financial problems. This currency weakness will create an entirely new set of severe economic problems and challenges, in addition to other problems that will almost certainly coexist at the same time of the Dollar’s decline.
While undoubtedly many people will expect any Dollar decline to be gradual and thus “manageable,” such an expectation will unfortunately prove too optimistic.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1763.31 as this post is written