From the border wall rhetoric to trade wars, Trump is effectively setting up the implosion of the dollar and couching it as pseudo nationalistic populism.
The pressure on the global economy imposed by the measures to curb the COVID-19 pandemic threatens to erode whatever confidence the world still has in the U.S. dollar as a viable reserve currency. A shortfall in U.S. domestic savings, dropping to 1.4 percent of national income, brought on by the drawn-out shutdowns and structural changes to the ways of doing business, such as the phasing out of brick-and-mortar business establishments and the substitution of human labor with robotics, may be the canary in the coal mine of the upcoming economic paradigm shift.
Among the visible signs that a global monetary reset is in the offing is the state of currency speculation markets, which are progressively moving away from the dollar as illustrated by the $1.5 billion slash in short positions in the previous week, the largest in six weeks. A more inconspicuous red flag might be the decreasing power of the U.S. Federal Reserve to affect markets as it has over its relatively short existence with a mere word here or the moving of an interest rate point there.
Just five days ago, Fed chair Jerome Powell declared in a press conference that the U.S. banking system was “so much better capitalized, so much stronger, better aware of its risks, better at managing its risks, [and] more highly liquid…”, that it represented a “source of strength” in this environment of widespread economic pain. In former years, just these words from the head of the U.S. central bank would have been enough to shore up any misgivings by market participants. But exactly the opposite occurred.
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