The USD$ will continue its long-term secular pattern of weakening (with occasional corrections) until the trade balances meaningfully go positive for an extended period. Without a much lower long-term USD$, I’m not sure how the US can realistically achieve a larger export sector as a percent of GDP. The peak of the US export sector was ~1970, coinciding with the peak of the US dollar.
Currency relative valuations, over the long term, always come to reflect long-term accumulated trade balances. Currency weakness, over the long term is the market’s way of indicating that trade deficits need to be balanced out. In the long term, the economy will allow no nation to be perpetually either a debtor nor a creditor.
Its sort of like a slow motion chronic illness, such as a slow growing cancer. Every so often, it might go into remission. But the long term trend is death, just as it is for the US dollar on account of long-term trade deficits. Until, of course, they get their proverbial act together, which probably will be forced upon them by crisis.
The (perceived) necessity of raising US policy rates to quell future inflation (devaluation). The increasing run on US treasury debt by foreign investors. The US CPI figures which actually came in quite a bit higher than I anticipated (especially compared to Canada which is at 1% YoY despite a 30%+ devaluation against our largest trading partner). The US’s shrinking prominence in the world. Declining living standards in the US. If you can’t add this all up and see the trend unfolding, well, there’s no hope for you.
Unknown Canadian Author.DYI Comments: At first blush the above author appears to be on the right track, however what he fails to know is American history; we oscillate from pro business to pro labor.
Beginning in the 1970's was the turning point from pro labor to pro business and full blown pro business environment marked by the firing of the air traffic controllers(PATCO) August 5, 1981 by President Ronald Reagan. Private sector unions were on the run as business sought the lowest possible cost of labor. At first it was moving manufacturing into the deep south where anti-unionism is very strong, as pro business agreements opened up with Mexico so went the jobs. As H. Ross Perot stated in the 1992 Presidential Campaign "The giant sucking sound of jobs" leaving the U.S. for Mexico. With the passing of Chairman Mao Zedong in 1976 a new Chairman Deng Xiaoping moved China to a more market based economy by the late 1990's it was off to the races for American manufacturing to relocate off shore. This propelled our imbalance of trade to new heights (along with importation of oil) pushing the not so almighty buck down in a see saw fashion.
The "kick off" for the turning phase was the WTO (World Trade Organization) meeting held in Seattle Washington at the end of November 1999 was met with protesters. With the majority of the U.S. economy running red hot most Americans were baffled as to why or what were they protesting. Known or unknown to the protesters at the time was that our civilian labor participation rate had peaked about a year or two earlier. Most knew on an intuitive basis (same as occupy wall street) something was going wrong. Very wrong.
Our pro business bubble economy was in full bloom with every government agencies promoting unbridled pro business (many that are anti competitive) policies pushed by both political parties. As an example President Clinton finished and pushed through NAFTA and removing the Glass Steagall Act allowing commercial banks into the investment business. Or President Bush Jr. pushing for massive ownership of homes irregardless of one's ability to pay, encouraging very low down payments along with a push (it failed thank goodness) for 40 year mortgages!
Fast forward to today the American public is angry, scared, and depressed all rolled into one. This is not a passing emotions along the lines of a T.V. commercial. This is in your gut for the duration of one's lifetime especially for the Millennial's. As they age and gain more and more political power there will be a big push to change our trade agreements favoring the American worker. They are set out to reduce, eliminate and a push for a positive balance of trade. There will be major event that will mark the full blown pro labor movement. I have no idea what it will be but when it happens and if you are paying attention, you will know when it does occur.
The American Dollar is not headed for the trash bin. The tide is turning but like all of us it never is fast enough. We are possibly in for additional tough times ahead but that will only solidify the Millennials (along with the older Cyber generation) resolve.
DYI
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