The US Debt Clock (U.S.), has lots of information. National Debt Clock: Actual Time Federal Debt now exceeds $30.6 Trillion. With a deficit budget at $1.6 trillion, federal spending now exceeds $6 trillion. The US federal debt to GDP ratio is 130%. Debt servicing costs $440 millions annually. The budget deficit can be financed by negative financing.
Washington, D.C.’s federal Administration seems not to care about budget balance, and isn’t willing to even consider reducing debt. The Fed raising interest rates could cause the situation to spiral out of control. The Treasury will issue more debt at higher interest rates, and it will be required to pay more for servicing federal debt. The rate of monetization will likely accelerate. The US cannot continue increasing its federal debt indefinitely. It is not sustainable.
The US trade deficit is $1.2 trillion with $390 billion going to China. It is amazing that the US Dollar has managed to hold its value on Forex markets in spite of such a large trade deficit.
There are many methods to calculate inflation. CPI is currently at 9%. However, it would be twice as high if it was calculated the same way it was 40 years ago. The BLS is an expert at manipulating inflation numbers. Prices of food and gasoline have increased by more than 9%. In recent years, gasoline prices have nearly doubled. This means that consumers will be spending less on other goods. Low-income earners will feel the negative effects of higher prices, and they will feel even worse. Investors will feel less wealthy because they won’t have as much buying power as inflation unless their nominal value increases at the same rate as inflation. It is unnecessary to mention that bonds with low yields will make you poorer in an inflationary environment.
Dollar inflation will affect more than just Americans. If the US Dollar is not valued in Forex markets, it will be more expensive to service loans that are US Dollar-denominated. To service the debt, US dollars must be bought with local currency. If the local currency is weaker than the dollar, servicing the debt will be more difficult. The case of Sri Lanka illustrates the negative consequences of trying green policies. Defaulting on debt can have negative consequences. If there is widespread default on debt, the US Dollar could lose its value. Many countries are at high risk of default. Here is a list with high-risk countries.
The Fed recently raised interest rates by 0.75 percent. The news sparked a rally in the stock markets. This is a great example of how markets can respond unexpectedly to good or bad news. Rising interest rates favor stocks over bonds. We don’t know how long the rally will last.
One effect that will be there for at least a while is the strengthening US Dollar. Foreign investors see higher yields on US paper, and so they invest in Treasuries. The Euro dropped and the ECB was forced to raise rates. The dollar index grew because of this. It was also possible to see that sanctions against Russia were causing the EU financial losses. This resulted in Russia having to reduce its energy supply. There is a high likelihood of severe recession in the EU, as it already has a much higher level of inflation.
A stronger dollar will have a negative impact on American businesses as it will make it more difficult to compete internationally. American companies will continue to outsource production plants in order to take advantage of the favorable exchange rate. The Dollar is likely to purchase more local currency abroad. The strength of the US Dollar will allow the US to continue to import large amounts of products from abroad.
The situation with the greenback is complicated. Two possible outcomes are possible. The first is that the dollar could decline. The Fed raises interest rates, and the Dollar strengthens. This could result in the EU entering recession. The US Dollar will maintain its dominant position in the $6 trillion USD daily Forex markets.
You should also consider other factors. China has established a CBDC (Central Bank Digital Currency) and increased trade with Russia. The BRICS countries are working together to create a new currency system that will replace the US Dollar-dominated global financial market. It is important to avoid US Dollars, as the US has used its financial power and currency to force others to conform to their standards.
Investors should be aware of the increasing opposition to the US Dollar. This could result in a dollar depreciation. Investors need to be aware of the terms Saudi Arabia accepts for oil payments. The petrol dollar system was born out of Saudi Arabia’s demand for US dollars to purchase their oil. If the Saudis are willing to accept payments in other currencies, a new era of global economy will be born. Russia, China, Iran, and North Korea will all play a major role in this game, with North Korea on the sidelines.
The Bottom Line
Many factors affect the value of the US dollar on Forex markets. Negative factors could lead to the greenback losing value. It is difficult to imagine the Dollar declining, considering its dominant position. The war in Ukraine, which is a result of US efforts to destroy Russia’s economy, could prove pivotal. Russia must find an alternative to the Dollar-dominated system. This will have major implications for the US currency’s price. The current situation will likely change if we are realistic about the future prospects of Dollars. Although it is not known when or how the Dollar will decline, it is already happening.