Lately, I’ve noticed a lot of noise online, with some so-called financial gurus shouting from the virtual rooftops that a US Dollar collapse is here.
It’s non-stop fear tactics.
I get it, humans are psychologically drawn to subjects that project concern and worry. A remnant of the primal fight-or-flight days.
I remember my boss telling me, “sell fear because fear sells” in my early business career. And, I have to admit, I have used fear-based headlines in my articles as well.
Yet knowledge and a grounded perspective are even more powerful and innately allow us to overcome our primal fear instincts – allowing us to thrive in times of uncertainty.
Here’s the secret component of the global currency infrastructure that’s often left out of the US Dollar collapse fear narrative – it’s called the Eurodollar market.
I thought it’s high time to debate these claims and hopefully convey a rational point of view around the current US Dollar collapse scenario.
I’ll go through the facts, figures, and stats to help you establish a clear picture of the US Dollar’s current situation.
Why the Perception of a US Dollar Collapse is Easy to Believe
Some factors might make it seem like the US Dollar is on very shaky ground and ready to fall:
- The US government debt to GDP ratio has skyrocketed to almost 130%, way past the traditional 30% safety zone of macro economics.
- Massive deficits and this thing called Modern Monetary Theory (MMT) are causing some eyebrow raises about the long-term health of the US economy.
- Interest payments on the US national debt? Yes, they’ve ballooned to over $1 trillion, doubling in just 19 months thanks to those pesky rising interest rates.
Yet, in spite of all this doom and gloom news, the US Dollar has maintained its strength for years and keeps getting stronger relative to all other major currencies (see chart below).
Why?
Gurus Never Mention the Eurodollar Market while Spreading US Dollar Collapse Predictions
Here’s the secret component of the global currency infrastructure that’s often left out of the US Dollar collapse fear narrative – the Eurodollar market.
This is the driving force, and critical to understanding the US Dollar’s current strength.
Imagine massive US Dollar deposits in off-shore banks operating completely outside of Federal Reserve and US banking regulator jurisdiction.
The Eurodollar market shapes global liquidity and interest rates. And guess what? It’s currently flexing its muscles, creating a demand for short-term US Treasury bills that keeps the US Dollar strong.
Not surprisingly, the internet gurus rarely talk about this singular, dollar-denominated global powerhouse.
The Comparative Weakness of Other Fiat Currencies are also Never Discussed
Our understanding of persistent, US Dollar dominance doesn’t stop there so let’s talk about what’s going on with the other major currencies.
While the internet gurus shout about the US Dollar collapse, they’re strangely silent about the troubles brewing in other fiat currencies:
- The Chinese yuan is like a house of cards, held up by unsustainable intervention from Chinese banks.
- The Japanese yen? Well, it’s basically doing a dance with the yuan, and if one falls, the other is likely to follow.
- The Euro and British Pound? They’re facing their fair share of challenges, from bond market collapses, deindustrialization, and the reality of a growing energy crisis. All this is putting their currencies on a far shakier ground than the US Dollar.
So, Here’s My Takeaway on a US Dollar Collapse Today
When you hear the ominous predictions about a US Dollar’s collapse, take a moment. The internet gurus might not be giving you the full story.
By understanding the Eurodollar market’s behind-the-scenes dance and recognizing the troubles in other major currencies, we can see that a US Dollar collapse is not happening and that it is much more resilient than the fearmongering suggests.
Yes, challenges exist, but let’s face them armed with the real facts. It’s all about a well-informed perspective on the global economic stage.
For Those that Want the Facts
1. US Dollar Strength:
- The US dollar has been exceptionally strong over the past two years.
- Despite well-known problems, such as a record-high government debt to GDP ratio approaching 130%, and multitrillion-dollar deficits, the dollar remains robust.
2. US Economic Challenges:
- The US government debt to GDP ratio is at a record high of nearly 130%, well above the considered prudent level of 30%.
- The US is running multitrillion-dollar deficits annually.
- “Keynesian Economics”, or Modern Monetary Theory (MMT) is influencing economic policy, suggesting that the US can accumulate unlimited debt without harm by printing money.
3. Interest Payments on US National Debt:
- Projected annualized interest payments on the US national debt exceeded $1 trillion at the end of October.
- The cost of debt service has doubled in the past 19 months due to rising interest rates.
4. Global Economic Challenges:
- Other major currencies, including the Chinese yuan, Japanese yen, euro, and British pound, face significant problems.
- China’s yuan is on the brink of collapse, and Japan is closely linked to the yuan’s fate.
- Europe and the UK are dealing with deindustrialization under Green New Deal policies, potentially leading to economic troubles.
5. Eurodollar Market Influence:
- The Eurodollar market, involving dollar-denominated deposits held at foreign offices of major banks, significantly impacts the global liquidity and interest rates.
- The Eurodollar market is currently in contraction, leading to increased demand for short-term US Treasury bills and contributing to the strength of the dollar.
