Dollar Strength: Why it Could WRECK The Global Economy!

There is a massive risk Weighing on the Global economy a risk which shows no Sign of easing anytime soon I’m talking About the strong dollar a wrecking ball Which is causing massive dislocations in The currency markets and driving down The value of all risk on assets so why Is this happening and what could it mean For your portfolio and the global Economy that’s exactly what I’ll be Exploring today so folks don’t go Anywhere Okay let’s start by pulling up the Dollar index chart For those unfamiliar the dollar Index or Dxy is a trade weighted Benchmark of Dollar strength it’s an indication of How strong the dollar is relative to all Of its trading partners And as you can see it’s at the highest Level that it’s been since 2002. on the Flip side Meanwhile we’re seeing Weaknesses in foreign currencies that we Haven’t seen for decades for example in The UK the pound has fallen to its Lowest level in over 37 years it’s Tumbling towards parity with the dollar And there aren’t many economists and Analysts betting against that eventual Outcome Things aren’t looking any better for the Euro either as it fell through parity a Few weeks ago it’s continued its Downward March all the way to 97.5 cents

To the dollar Over in Japan meanwhile the Yen’s Weakness has gotten so bad that the bank Of Japan has intervened to try and stop The slide the last time it did this was Back in 1998. So what’s driving this exactly well There are a number of factors but Perhaps one of the most apparent is Interest rate differentials quite simply Given that the FED has been pumping Interest rates like nobody’s business It’s left most other central banks in The dust what this means is that the Rates that can be earned on dollars and Dollar denominated debt are much higher Than those earned in other countries so Why should investors keep holding German Buns with a two percent interest rate When they can hold 10-year U.S Treasuries with a yield of 3.68 it’s Even more Stark when compared to Japanese bonds which are yielding a Pathetic 0.24 of course in order to buy U.S government debt you need dollars Hence one of the main reasons why the Dollar has been rallying so much It’s not only the interest rate Differentials though it’s also the Perceived strength of the US economy now I know that this sounds Counter-intuitive given that the US Could be in a technical recession more About that in the description

But compared with most other countries Out there the US is in a much better Relative position Europe is on the brink Of a massive energy crunch while having A full-blown war on its doorstep China meanwhile is dealing with Nonsensical covert policies and an Imploding housing market holding U.S Assets and currency is seen as the Ultimate risk-off play in a world where The risks are too one-sided but of Course it’s not only across borders that This dollar risk-off trade is happening It’s also happening within the us as Investors start moving out of risky Assets like stocks and crypto They will inevitably be parking their Capital in USD so more demand for the Greenback Okay so that’s what’s going on with the Dollar it really is quite unprecedented But why is this a bad thing Well perhaps one of the first and most Important factors to consider here is The tumult that this is causing in other Countries firstly not only is the US Dollar the global Reserve currency but Is also the most widely used currency in Global trade thus as the value of the Dollar strengthens relative to other Currencies Imports become that much more Expensive some of these Imports may be Replaceable or purchases can be delayed But some of them are vital

These include the likes of oil and Energy trades which are usually settled In dollars the more expensive the dollar Is relative to an important local Currency the more expensive these Imports become now not only does this Lead to some back-breaking inflation but If left unchecked it could lead to a Balance payments crisis this is exactly What’s happened in countries like Sri Lanka and you can find more about that In the description Tldr the balance of payments crisis led To a political crisis that led to social Revolution and how many other countries Out there are in similarly precarious Socio-economic situations spoiler alert A lot But even if a currency doesn’t endure a Full-blown balance of payments crisis The high levels of inflation caused by More expensive Imports could still push Things over the edge you only need to Take a look at the rates of inflation For some countries in Europe compared With those in the United States it’s not Looking good But the bad news doesn’t stop there Another really big threat to these Countries is a sovereign debt crisis That’s especially the case if they had Issued dollar denominated debt you see During the pandemic money printing days There were a lot of dollars floating

Around moreover issuing dollar Denominated debt was cheap just like you May have taken advantage of it to secure A cheap mortgage countries did the same With their spending Ambitions the only Problem now is that as the dollar Becomes more expensive the cost of Servicing these debts increases as well Not only that but rates on these debts Are rising too which makes it a double Whammy Countries could legitimately struggle to Meet their debt obligations Now sovereign debt crises can be Debilitating for countries and it takes Years for them to get back on their feet And it’s not only dollar denominated Debt that these countries should be Worried about You see in order to reign in inflation And correct the monetary policy Imbalances other central banks are Rushing to raise their own interest Rates they have to respond in kind to The actions of the Federal Reserve lest They see their currencies turn to dust Last week central banks around the world Unleashed a combined 350 basis points of Rate Rises following the fed’s lead the Central banks of the UK Norway and Switzerland all increased their rates in This rate hiking cycle central banks of The top 10 biggest economies have pumped Rates by a combined

[Music] 1965 basis points almost 20 percent What all this means is that debt Denominated in those currencies is also Becoming more expensive over in the Eurozone the European Central Bank is Pumping rates aggressively including the First 75 basis point hike in its 24-year History now this poses a number of Challenges for some countries in the Eurozone especially those in southern Europe While the European sovereign debt crisis Of 2010 which involved smaller countries Like Greece was manageable a crisis Today that involves Italy for example Won’t be there are reasonable concerns That Italy could be facing a momentous Debt crisis Here are some high level numbers for you To mull over Italy’s two trillion dollar economy is 10 times that of Greece it’s three Trillion dollar sovereign debt Market is The world’s third largest It has a 150 public debt to GDP the Second highest in Europe It has slow economic growth and an aging Population Now those are some pretty troubling Economic stats right there and the Market is taking notice the spread Between the Italian government debt and That of German buns is now at its

Highest level since the pandemic began This spread is already on top of the Rising rates we’re seeing on base rates In the Eurozone and that is just Italy There are a number of other European Countries similarly precariously Balanced oh and speaking of countries With high debt loads guess which country Has the second highest in the world with Over 266 percent of GDP that’s right Japan And this is part of the reason why Japan Remains an outlier for Global Central Bank monetary policy the country has its Hands tied given the absolute mountain Of government debt that has been allowed To build up now the point here is that Dollar strength is having severe Knock-on implications even for countries That issue debt in their own currencies Now many of you watching will of course Be American and perhaps wondering to Yourself so what we’re energy Independent and a stronger dollar could Help to alleviate our inflation Well it could also have some downside Implications for you too allow me to Explain Firstly a strong dollar is pretty bad For U.S exports that’s because the Stronger the dollar the more expensive These exports become in local currency Terms for U.S trading partners This could do a lot of damage to those

Companies in the US that rely on exports And it could further exacerbate the U.S Trade deficit this is currently Averaging around one trillion dollars Per year which is five percent of the Country’s GDP This at a time I’ll remind you when debt To GDP is close to 100 percent Apart from hurting the earnings of those Companies that rely on exports you also Have the fact that the strong dollar Will harm the earnings of those U.S Multinationals that make money overseas That’s because their earnings are Reported in U.S dollars and as they have To convert their foreign currency Revenue they’ll have to do so with a More valuable US dollar for example Imagine Amazon has generated billions of Euros in profit in its European business That’s going to be worth way less in Dollar terms Now these foreign currency conversions Would be losses in the company’s Financial report by some estimates up to 30 percent of revenues in the S P 500 Come from overseas so the higher the dxy Goes the more it will weigh on the Earnings of America’s top companies this Means that your stock portfolio is Impacted directly by the strong dollar Lower earnings potential low evaluations Lower stock prices You also have to consider the fact that

A strong dollar makes U.S financial Assets less attractive to foreign Investors they’re more expensive to Purchase not only that but there are Large International institutional Investors in U.S assets who could be Sitting on large foreign currency gains They could also see this as an Opportunity to repatriate and lock in Some of those gains so even though U.S Citizens aren’t as exposed to the strong Dollar as those in other countries are It will still impact the U.S economy and Americans portfolios but how much longer Is this dollar strength likely to Continue for and could Global policy Makers do anything in order to address It Well it’s unlikely to slow down anytime Soon and that’s because many of the same Factors that were driving it aren’t Slowing down either the FED has said That it anticipates taking rates as high As 4.6 percent before it even considers Taking its foot off the gas there are Also some analysts who think that the Fed’s fund rate could head into the five Percent range come next year that is Going to further Drive interest rate Differentials across the world and lead To a flood of Global Investors parking Their funds in U.S treasuries Moreover when it comes to the global Economy things are likely to get worse

Before they get better over in Europe The war in Ukraine seems to be entering A more troubling phase Putin has ordered the mobilization of More soldiers and has made veiled Threats to use nuclear weapons if needs Be Russia is also turning off the gas Taps To Europe which is further pummeling the Economies of both China meanwhile is still locking down Its cities as it tries to achieve Nonsensical zero covert targets Yes the U.S economy is facing Difficulties as well but compared to the Rest of the world it’s still seen as a Safe haven U.S treasuries are the gold standard of Risk-off assets at the moment despite How crazy we may think that is Now when it comes to potential measures To address this dollar strength there Are very few options that don’t involve Coordinated actions right now foreign Central banks are trying to play Catch-up but it won’t really work the FED is ahead of the curve and leaving Them in the dust However couldn’t Global policy makers Coordinate their actions to address this Dollar strength it’s not like they Haven’t done so before quick bit of History on the 22nd of September 1985 Finance ministers and Central Bankers

From the world’s largest economies got Together at the Plaza Hotel in New York City They were there to address the strong Dollar and the Havoc it was wreaking on The global economy the agreement they Reached came to be known as the plaza Accord in which the officials present Agreed to an unprecedented and Joint Intervention in the currency markets Target rates were agreed and the policy Makers got to work ultimately they were Successful the dollar experienced about A 50 decline while the currencies of West Germany France the UK and Japan saw 50 appreciations However could this work in today’s Markets Well it definitely won’t be as easy and That is for a number of reasons firstly The global economy today is virtually Unrecognizable to the one that existed Back in 1985. given that China is now One of the most dominant trade partners Of countries in the west any currency Intervention without it would be futile China isn’t also as concerned about the Value of the year one as countries like Japan the EU or the UK are with their Currencies so it’s unlikely that the Chinese will be jumping at the offer to Join the negotiating table China aside is also not likely that U.S Policymakers would be that Keen to get

Involved in such discussions that’s Because treasury secretary Janet Yellen Has made clear that she wants quote Market exchange rates to determine the Value of the dollar moreover given that She was a strong proponent of the Farcical transitory narrative on Inflation she needs to do everything she Can to bring inflation down now while a Strong dollar does damage exports and Company earnings it can help alleviate The inflationary impact of those Imports So it seems likely that Central Bankers In other countries will have to try and Coordinate their actions without the us Or China at the table which to be honest Would be akin to them just burning their Foreign reserves as the saying goes Don’t fight the Fed Okay time for some of my personal Thoughts on this state of affairs it’s Quite clear that dollar strength is a Macro economic headwind that isn’t going To die down anytime soon while it’s one That is likely to be felt by those Outside of the US it’s something that Could also be damaging for the US Economy in the long term the higher the Dxy goes the more that it’s going to Hammer U.S exports and the less Competitive U.S Goods will become in the Global economy it’s also going to weigh On corporate earnings and further Depress stock prices but I’m less

Worried about that I’m more worried About the risks that the strong dollar Is placing on those countries which are On the edge those countries that are Dependent on food and energy Imports and Are already struggling to keep up with The costs of these items as things stand By piling on the additional dollar Component these goods and services are Becoming unaffordable we’ve seen Large-scale civil protests erupting Around the world already and there are a Number of powder kegs that are just Short of a match I’m also really worried about the impact That this strength could have on those Countries that are precariously balanced From a debt perspective it’s no longer Countries like Argentina or Greece that Could be at the risk of default you now Have situations where much larger Economies and debt loads are at risk of Going sour Now what impact do you think an Italian Debt crisis could have on the Eurozone Do you think that the Euro would be able To withstand that test and what happens If contagion spreads to countries like Spain or Portugal it’s not a pretty Picture What’s also quite unfortunate about this Is that we are unlikely to have a Respite anytime soon that’s because the FED is focused on fighting inflation if

It’s willing to keep hiking with Negative GDP numbers and troubling signs In the U.S housing market then the Concerns of citizens in other countries Will be viewed as an afterthought Now without participation from the US And China then any coordination other Countries attempt is futile it’s more Likely that they will have to engage in Unilateral actions that they deem best For their own domestic economies or They’ll just have to ride out the storm And conserve their foreign reserves the FED will eventually start dropping Interest rates the war in Ukraine will Eventually end and energy prices will Subside until that time though buckle Your seat belts because it’s going to be A wild ride And that’s it for my video today folks But I am Keen to get some of your Feedback so what do you think of dollar Strength how has your local currency Competing against the dollar let me know In the comments below and if you want to Get more of me then I encourage you to Follow my Twitter telegram Tick Tock and Instagram there is a bunch of content There that you’re missing here you also Have to subscribe to My Weekly Newsletter it’s there where I share my Personal portfolio as well as breakdowns Of the videos that I have coming up so The links to all of those are in my

Socials page below and are you looking For some of the best deals in the crypto Space then you are in luck because they Are all over on my deals page promos and Discounts for all of your favorite Crypto products and services exclusively For the videos of this channel so all of That which you seek is down below and Finally if you found this video helpful Slap a like on it subscribe and ping That Bell as well to make sure you never Miss another one time’s up for this Crypto guide but I will be seeing you Guys very soon [Music]

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