The Fed have undergone the most aggressive money printing in history this year. The problem is that more important than supply is the velocity of money. People are saving due to current affairs, so money simply isn’t circulating as much as it should. Without velocity the new money is simply going to the banks and stock market, keeping it in a frothy bubble. Already the dollar is dropping.
In 2016 the dollar dropped 14% over a period of 14 months. This year, in 2020, the dollar dropped 13% in half the time, seven months, in relation to the DXY or basket of currencies.
Back then, the sovereign debt crisis of other nations meant that they could not pay back their debts against the dollar, so they agreed to drop the value of the dollar to allow for the debt repayment. It was co-ordinated and agreed upon back then, but this time not so. All currencies are trying to devalue. There is massive QE by all of them. And they all have close to zero interest rates or negative. So the question remains, why is the dollar crashing this time?
The reason this time is loss of trust. There is no backing to the dollar any more, not since the 1971 gold standard was repealed by Nixon. Perhaps we could say it is backed by oil, as in the petrodollar, but it is basically the military that backs the dollar.
Ultimately it is trust that backs a currency, and at present trust is very fragile. It is evident that fractional reserve banking creates more debt, and not enough money to go around. Even if just 1% of people take their money out of the bank, it will cause a bank run. This can collapse the banking system.
Trust takes lots of time to build but can be lost in an instant. In USA trust in the entire government is at an all time low historically. Already back in 2017 only 17% trusted the government. It may be much lower now, since the recent election. There was a real lack of transparency. The markets really need trust or confidence in the government. At present assets are attractive to the market, like gold, real estate and stocks. And some of them are at ATHs (all time highs).
As a result the financial future of USA and the dollar is looking vulnerable. Things happen gradually and then suddenly, and it may be so with the dollar and its potential collapse. It seems to be hanging on by a thread. Purchasing power is melting away. As a result we need to position ourselves before it’s too late. Be sure to buy yourself some bitcoin, or gold and silver.
Remember that 20% of all dollars in circulation or ever printed, was printed in 2020 alone. This all is uncharted waters for the dollar and the Fed. The world may be about to shift still further as 2021 arrives and plays out.
(image pixabay)