DOLLAR DETERIORATION DEBACLE: Beginning of the End of an Empire!

Beginning of the End of an Empire!

The dollar’s on the ropes, but the perma-bulls will always hope and cope. Nothing in the data – which is provided by the same government that promulgates print-and-spend policy – is positive for the U.S. dollar. Yet, the spin doctors are relentless even if their arguments have more holes than Swiss cheese.

Treasury Secretary Janet Yellen has the unenviable task of defending the dollar even as more global leaders push back against American hegemony. In what may have been a slip-up, Yellen admitted that “rule of law” is a major reason for the greenback’s current dominance.

In other words, nations use the U.S. dollar for global trade because it’s enforced and not because they really want to. As countries around the world seek to upgrade from developing/emerging to industrialized/developed, leaders are looking beyond the dollar – and even beyond fiat currencies in general – for something they can actually count on.

The data doesn’t support the dollar defenders’ position at all. The mainstream press won’t acknowledge this directly, but dollar apologists are operating under the assumption that the American economy is running on all cylinders. A closer look at the facts, however, reveals that it’s out of gas and about to stall out.

Take the upward revision of the U.S. gross domestic product (GDP) as an example. It’s a trick that’s been part of the playbook for decades: issue an ultra-low productivity estimate, and then revise it higher to make it look like a huge win for the economy.

Thus, the original estimate for 1Q2023 U.S. GDP growth was set absurdly low at 1.3% only to be revised significantly higher to 2% last week. Bear in mind that this is for the three-month period ending in March. Surely, the timing of the upward revision – several months after the fact – isn’t mere happenstance.

Naturally, career politicians will tout the upward GDP revision as an apparent sign of a strong economy. What they won’t mention is that 1Q2023 GDP, even at 2%, represents two consecutive quarters of contraction (4Q2022 GDP was 2.6%).

Just as importantly, an upward GDP revision puts the Federal Reserve in a tough spot. The Fed’s takeaway will undoubtedly be that 10 interest rate hikes totaling 5 percentage points hasn’t had the desired effect and that more rate hikes will be needed.

Another problem for the Fed is May’s reading for the core personal consumption expenditures (PCE) price index, which is the central bank’s preferred inflation gauge. If anyone tries to convince you that the inflation problem is over, just note that the core PCE print for May was up 0.3% month-over-month and 4.6% year-over-year.

Federal Reserve Chairman Jerome Powell won’t feel comfortable about ending his policy of raising interest rates until inflation is at 2%, and we’re nowhere near that level. He recently stated that he doesn’t expect to see 2% inflation for a few years.

The next Fed meeting will happen this month, and traders are pricing in an approximately 87% chance that the central bank will approve a quarter-point interest rate increase. As persistently “sticky” inflation continues to weaken the dollar, the U.S. economy remains at risk of an engineered slowdown courtesy of Powell and his peers.

In that context, a bet on the dollar is a losing proposition. Developed and emerging nations see the writing on the wall, and they’re preparing for the dollar’s inevitable decline. The five BRICS nations/regions (Brazil, Russia, India, China, and South Africa) have pledged to launch a new reserve currency that would supplant the U.S. dollar.

It’s not just the BRICS regions that are joining the de-dollarization movement. The government of Egypt, for example, is calling to abandon the dollar for settling overseas trade with several BRICS nations.

All of this begs the question of what would replace the U.S. dollar as the world’s reserve currency. That question may be based on a false premise because not everyone agrees that there ought to only be one dominant currency of trade in an increasingly pluralistic world.

Besides, there’s no rule that one fiat currency has to replace another. As I’ve discussed plenty of times, governments and central banks around the world are rapidly shoring up their physical gold reserves. Moreover, citizens and some governments are turning to cryptocurrency as an alternative to rapidly deteriorating fiat money.

The tide is turning in the 2020s, but not in direction politicians and central banks want right now. If nations aren’t beholden to the seemingly almighty dollar, then the dream/nightmare of a one-world government will slip away and the people will finally have the upper hand.