“A lower US dollar will give a shot in the arm to US exports and overall global growth”

“A lower US dollar will give a shot in the arm to US exports and overall global growth”

#global #growth #exports #dollar

$USD $EUR $GBP $USO $XAU $GLD

The USD is struggling, and the market is betting the Buck has more room to fall. The trade-weighted USD has fallen 7% from its March highs, and we expect it fall at least 15% from the highs. That will give a shot in the arm to US exports and overall global growth

According to the 20-yr internet publication, “the balance” which is part of The Balance family of sites, including The Balance Careers and The Balance Small Business, 1 of the Top-10 largest finance properties as measured by comScore, a leading Internet measurement company, the US Dollar will continue to fall.

In 2014, the US dollar value was $1.21 to the Euro and $1.72 to the Great British Pound. As of today, the US Dollar further has dropped to $0.85 to the Euro and to $0.75 to the English Pound, both necessary to promote US exports. 

With the Fed having lowered interest rates to near Zero, there was the chance that the dollar’s value would increase. However, foreign investors became more concerned about the US debt. They know that the United States wants the dollar to decline so that the relative value of its national debt is less. 

Also of note was the fact that the inflation rate in the United States between 1956 and 2020 was 858.86%, which translates into a total increase of $858.86. This means that 100 dollars in 1956 are equivalent to 958.86 dollars in 2020.

In other words, the purchasing power of $100 in 1956 equals $958.86 in 2020. The average annual inflation rate between these periods was 3.6%. As of late July, 2020  the dollar weakened as the 10-yr yield peaked at 2.79% 

A Weak Dollar Supports Exports and Dampens Imports

As we all know, a weak dollar increases import prices, which helps US manufacturers and our employment recovery but conversely, also contributes to inflation, a risk that we must incur if one of our prime objective to getting people back to work.

Conversely it also lowers export prices, spurring economic growth which we want. Watch what happens with our trade with the UK on the completion of BREXIT.

In my opinion, the US Dollar’s value will continue to experience dips in the short term but may also cause swells in the future as our economy regains its position of dominance in the World, affecting everything you buy.  

Inflation Will Remain Subdued

 When Crude Oil prices return to a normal range, it could raise fears about hyperinflation. But the Fed is vigilant about reversing QE (quantitative easing) and raising the Fed Fund Rate when needed.  The most important role of the Fed is managing public expectations of inflation. Once the public expects inflation, it becomes a self-fulfilling prophecy.

The Fed can maintain confidence in the economy by demonstrating moderation, resulting in less extreme changes in public economic behavior. The Fed knows this is how former Fed Chairman Paul Volcker ended the stagnation of the 1970s.

Today, by keeping interest rates relatively low, the Fed believes that it can in part reassured the public it was committed to preventing any major inflation.  

Core Inflation should remain at 2%

 Most economist, like myself, believe that core inflation will remain around 2%. Food prices may rise temporarily since they follow volatile oil and gas prices. But the cost of living is expect to remain about where it is today which is also good for our economic recovery..  However, one should not have to worry as much as you did in the past about inflation eating away at your retirement savings. Without the threat of inflation, it’s also likely gold prices will rise above $2,500 and probably to $3,000 an ounce over the next 12 months or less . Gold serves as a good barometer of the health of the economy.

One should note that Gold prices skyrocket when investors are worried about either inflation or future economic growth.  

Housing Growth Will Be Sustainable

 The Tax Cuts and Jobs Act limited the deduction on mortgage interest to the first $750,000 of the loan. Interest on home equity lines of credit can no longer be deducted. It also doubled the standard deduction, which could increase the number of people who take it.The National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) opposed this in 2017. As more taxpayers take a standard deduction, fewer may take advantage of the mortgage interest deduction. To offset any negative effects, the Fed also lowered interest rates in late 2019 and held them steady. Not only is this important for the US economic recovery, this will make mortgages more affordable.as we can expect mortgage rates to remain constant or even decline further, and thus housing prices often increase to offset the cost to home buyers.   

A Lid On Housing Prices

The tax plan could keep a lid on housing prices. But the lower mortgage rates have inspired people to buy homes, a key to the US recovery. And while many people are concerned that the Real Estate market is in a bubble that could lead to another collapse,

Zillow reported in December 2019 that its experts believe the housing market will remain stable over the next few of years,  As long as the Fed holds rates steady, there’s a chance the housing market will boom, but not bust.

 A Frenzy on Initial Public Offerings – IPO 

IPOs are starting to open up and thus causes increased new capital, attracting both domestic and foreign investors. This is also another positive sign for our recovery for new capital causes further employment opportunities and thus should have a positive effect on the dollar. 

A number of the “Signs” are now in which will caused an acceleration to our economic recovery like we have not seen since the end of World World II. Stay tuned as our recovery strengthens and its definition grows.

By Bruce WD Barren, Economist

Paul Ebeling, Editor

Editor’s Note: Dollar depreciation lowers the local currency cost of imports and boosts import demand, trade volumes and output. A 10% USD depreciation against all other currencies is associated with a 5% rise in the volume of global non-US trade.

Have a healthy weekend, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.