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Experts are in a debate on just how does the average American benefit from the USD’s reserve currency status, and would the Buck’s fall from grace have a negative, or positive, impact on the livelihood of the average American worker
Economist Steve Keen recently declared that average investors are over-inflating the risks of a weaker USD or the American Buck losing reserve-currency status.
Experts and investors also fear that a weaker USD and/or the loss of reserve-currency status would cause interest rates to surge.
Mr. Keen explains it’s not the external market that sets US interest rates but the Fed.
“So I can see it as giving America quite a severe jolt. But it won’t be something which causes interest rates to go sky-high. They will still be held in a band by the Federal Reserve. You might see rises in corporate rates and so on, but not large rises in the rates on American government debt,” said Mr. Keen.
Reuters recently reported that Saudi Arabia is threatening to sell its Crude Oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to US antitrust lawsuits, three sources familiar with Saudi energy policy said.
They said the option had been discussed internally by senior Saudi energy officials in recent months. Riyadh has communicated the threat to senior US energy officials.
The chances of the US bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the Kingdom’s annoyance about potential US legal challenges to OPEC.
In the unlikely event Riyadh were to abandon the USD, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states.
However, Mr. Keen does see some uncertainty regarding the USD’s reserve-currency status.
And if and when most of the world would ditch the USD as the global reserve currency, there would be some fallout for America, Mr. Keen explains.
“Obviously, it’s going to mean a reduction in demand for American dollars on foreign exchange markets, which must mean a fall in the price over time. And it will be complicated by the usual spot and hedge markets,” he said.
“But, yes, seeing a fall in the value of the USD, unless America’s financial sector could no longer use the fact that it was American to have the power it has over financial institutions elsewhere in the world, so that the scale of the financial sector would be pulled back, your manufacturing sector would be more competitive. But, as you know, you do not have the industrial pattern you used to have,” Mr. Keen said.
“You have still got some outstanding corporations and outstanding technological capability. But you do not have that machine tool background. The skilled workers that used to exist there aren’t there anymore. So there would be a serious shock to America with more expensive goods to be imported from overseas and a slow shift towards having a local manufacturing capability, making up for the damage of the last 25 years,” he said.
“I can see a lot of social conflict out of that as well, but a positive for the American working class, who really have been done over in the last Quarter century. And that is partly the reason why Trump has come about.”
Peter Reagan also urged caution about the strong USD’s future and urged investors to see safety in the traditional safe haven of gold.
“The dollar’s grasp on its status of global reserve currency continues to slip away. It could start dancing nervously if geopolitical tensions increase from the next Presidential announcement,” Mr. Reagan explained.
“The bottom line is, anything can happen as the World pushes away from the USD and the economic outlook remains uncertain.”
The Big Q: So, what can you do?
The Big A: Precious metals like gold and silver have been historically proven to do well when USD does not.
Making and Keeping America Great!