The talk is growing about the dangers the United States faces as its governmental budget continues to post deficits and the amount of government debt continues to increase.
Dark clouds to many.
The problem, however, is one of timing.
In a world of uncertainty, a crisis usually takes a lot of time to take place and its timing is extremely difficult to forecast.
On the other hand, the U.S. economy is growing.
U.S. stock markets are rising.
And, the unemployment rate remains near a 50-year low.
Is there any place we might look to get some kind of clue about unfolding events?
Let me suggest one possible source of information.
Let me suggest that we keep an eye on the value of the U.S. dollar.
The value of the U.S. dollar is a very sensitive indicator, and it gives us a good picture of when monies are flowing into the country and when monies are leaving the country.
Given that the U.S. dollar is the strongest currency in the world, is used by almost everybody, and is very globally connected, let me suggest that the value of the U.S. dollar might be a very good place to look for clues about what might be going on in the world.
Because of its position in the world, lots of “world” money flows into the United States. And, consequently, lots of money can at times also flow out of the country.
The price of the U.S. dollar responds quickly to movements in these international money flows and can give us a signal that something is happening.
That is, a rapid movement out of the U.S. dollar could be closely tied to a movement out of U.S. debt, something that could lead to a financial crisis.
If we use the U.S. dollar as an indicator of building troubles and a sign that things could get worse quickly, then we need to understand where things are right now and what we need to be on the lookout for, should things not proceed so well.
Right now, the U.S. dollar looks relatively strong.
This chart moves from January 20, 2021, to the present time. It represents the time that Joe Biden has been the President of the United States.
To get a more specific picture, let’s look at the U.S. Dollar/Euro pricing. From early January 2021 to June 27, 2014, the value of the U.S. dollar relative to the Euro has risen by about 15.0 percent.
The grade given for this type of performance needs to be near an A. Money is flowing into the United States. Consequently, the value of the U.S. dollar has been rising.
As can be seen from the chart, the value of the dollar, from early 2021, through to September 26, 2022, the peak of the dollar rise following the move by the Federal Reserve into a period of quantitative tightening, amounted to more than a 27.0 percent rise.
Looking at the more recent performance, let’s focus more closely at the U.S. dollar/Euro price.
Since around the beginning of 2023, the value of the U.S. dollar has fluctuated between $1.05 per Euro to $1.12 per Euro.
There appears to be a lot of questioning going on about where this exchange rate should go.
As suggested above, there has been a growing concern that the U.S. debt is getting out of hand and that this might result in a financial disturbance soon, a disturbance that would result in a U.S. government default.
Personally, right now, I am waiting for the price of one Euro to drop below $1.05.
Yes, I see the value of the U.S. dollar rising.
So, what is going on with all this talk about a fall in the U.S. dollar?
What is all the current talk about the amount of debt that the U.S. government is generating?
The U.S. dollar seems in a pretty strong position, and I expect it to move into an even stronger position.
The most pertinent argument about the position of the U.S. dollar in the face of all the government’s debt that is outstanding is that “relative” to the condition of other countries, the world’s investment community believes that the United States is in a stronger position.
That is, the United States government may not be following the most prudent fiscal policy for its future, but, “relative” to the situation in other countries, the United States is doing pretty well.
That is why so many investors from around the world are still putting their money, or, keeping their money, in U.S. government securities.
Even though these investors recognize the problems that the United States might be facing, “relative” to others throughout the world, the United States seems to them to be less of a risk.
This, to me, tells me a lot about what is going on in the rest of the world.
Political polls may tell us one thing.
Where people are willing to invest their money tells us another thing.
So, my advice is to keep your eyes on the value of the U.S. dollar.
If it continues to stay strong, even moving to where it costs less than $1.05 to acquire one Euro, look for the positive things going on.
If the value of the U.S. dollar starts to move above $1.12 for one Euro and continues to move in that direction…take care. Look for other signs.
So, this is why I will keep a close eye on the value of the U.S. dollar going forward. And, it is why I will write a lot about it.
But, this doesn’t mean that I am comfortable with all the debt the U.S. government is creating.
I believe that the U.S. government has moved and is moving in the wrong direction. It is building up an excessive amount of debt. I have just written a post on this very topic.
And, I believe that when things finally crack, things will move much faster than you might think.
Somebody must step up to this problem and someone must take a position that will stop this crazy path into the future.
Even though more people are talking about the deficits and the debt being accumulated, no one is really stepping forward, particularly our political leaders, to suggest how we might turn this situation around.
People seem too comfortable with how easily we have gotten this far along on the train to the surprise.
That is why we must be looking for signs about what is going on.
That is why we need to keep our eyes on markets that may give us indicators that we need to be aware of.
I will be watching the value of the U.S. dollar, I will be watching what is going on with world money flows, and I will be watching the “relative” actions that are being taken around the world.
“Right now” things appear to be stable.
But, the national debt is excessive and when markets finally react to this position, the reaction will be fast.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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