The United States will drastically devalue the dollar in the next few years. There are several huge benefits from greenback devaluation that policymakers cannot resist.
Obviously, trade provides the most compelling rationale for dollar devaluation. A weaker currency encourages exports by making a nation’s products cheaper in global markets. Conversely, a weaker currency discourages imports by making them more expensive.
Decreasing US imports is one of President Donald J. Trump’s (R-New York) top priorities. Therefore, dollar devaluation is a logical policy for his administration.
Why Trump will devalue the Dollar
Tellingly, Trump admires China’s policy of encouraging industrial growth and exports with a weak currency. I think Trump wants to adopt a Chinese-style economic policy of low currency values and high exports.
Furthermore, a weak currency will benefit some of Trump’s most important constituencies in important ways. For example, a low dollar will increase agricultural and mineral exports.
Trump won the presidential election because of support from rural voters. In particular, he received heavy support in the Great Plains, South, and Midwest which depend on agriculture, coal, and petroleum.
To demonstrate, Trump’s recent tariff policies have been having a negative impact on farmers. With this in mind, the administration could offset the negative effects of tariffs with a devalued dollar.
When will Trump devalue the Dollar?
The president is taking a huge risk here because the benefits from a weaker dollar might not kick until after the 2020 presidential election. In summary, Trump’s economic policies might deny him reelection.
Therefore, Trump will have to institute a dollar devaluation policy fairly quickly if he is serious about reelection. On the other hand, Trump is probably waiting until after the 6 November Congressional election to make major economic decisions.
There will be new leadership in the House of Representatives (the lower house of Congress which ultimately controls U.S. economic policy) in January 2019. Accordingly, Trump is waiting to see who that leadership is before proposing new policies. A point often overlooked is Trump will need Congressional approval (or indifference) to implement any economic policy.
America will devalue the dollar because of debt
America will devalue the dollar because currency devaluation could benefit far more than trade. In the long run, dollar devaluation makes sense.
Americans ignore one of the greatest benefits of currency devaluation. Notably, a weaker currency makes it easier to pay off debts.
To demonstrate, if you owed $100,000 in student loan debt and the dollar’s value fell in half. You would owe $50,000 instead of $100,000.
Dollar devaluation is attractive because America is awash in debt collegedebt reports. For instance, Americans owed $1.624 trillion in student loans, $882.6 billion in credit card loans, and $750 billion in auto loans on 23 September 2018.
Frighteningly, a lot of that debt is uncollectable. For example, nearly half (49.4%) of Americans aged 67 to 74 are still making mortgage payments, Fannie Mae calculates.
By the same token American Financing estimates 44% of American retirees are making mortgage payments. In particular, 16.63% of American retirees admitted they can never pay off their mortgages in an American Financing survey. Likewise, 32.31% of retirees admitted it will need eight years to pay off their mortgages.
How Dollar Devaluation Helps Seniors
All that debt could trigger a financial crisis because many retirees will have nothing but Social Security for income when they retire. Significantly, the average Social Security payment in the United States was $1,320 a month in 2018 while average mortgage payment was $1,200 a month.
Dollar devaluation will help seniors because the government adjusts Social Security for inflation. Conversely, nobody adjusts most for inflation.
If the dollar falls, Social Security payments will increase because of the Cost of Living Adjustment (COLA). Meanwhile, mortgage payments will stay the same. To clarify things for our foreign readers, Social Security is America’s basic income scheme for senior citizens and the disabled.
Therefore, a lot of seniors could have more money to spend with a devalued dollar. Senior citizens are one of Trump’s most important constituencies. To enumerate, 53% of persons over 65 voted for Trump in 2016, Pew Research calculates.
To put it differently, the Donald would still host The Apprentice without senior voters. Therefore, devaluing the dollar before 2020 is a sensible policy for Trump. To add icing the cake, dollar devaluation will help other groups like college graduates, small businesspeople, African Americans, Hispanics, and working-class whites pay off debts faster.
Corporate Debt will Force America to Devalue the Dollar
Ultimately, Big Business has just a much to gain from dollar devaluation as seniors. Specifically, Forbes contributor Jesse Colombo thinks “The US is experiencing a Dangerous Corporate Debt Bubble.”
For example, total corporate debt has increased by $2.5 trillion or 40% since 2008. Significantly, America’s corporate debt equals 45% of its gross domestic product. Therefore, America’s corporations have borrowed around $8.36 trillion they might not pay off.
Devaluing the dollar is an obvious and easy means of defusing the corporate debt bubble. Furthermore, dollar devaluation could defuse the student loan, auto loan, mortgage, and credit card bubbles.
I suspect that Trump is already under intense pressure from Wall Street to devalue the dollar. Goldman Sachs (NYSE: GS) and company are pressuring Trump for devaluation because they are afraid of a debt bubble. Investment bankers can force Trump to devalue the dollar by giving money to his political opponents.
Obviously, that gives Trump another strong incentive to devalue the dollar if he wants to run for reelection. Moreover, the pressure will still be there even if Trump does not run. There are many other politicians who will need money for their reelection efforts and Wall Street has the money.
How America will devalue the dollar
The easiest way to devalue the dollar is to simply have the Federal Reserve cut its value.
Central banks have the authority to cut a currency’s value. For example, the Egyptian central bank cut the value of that nation’s currency the pond by 14% in 2016. In particular, the People’s Bank of China (PBOC) devalued the yuan before the 2016 presidential election.
The problem for Trump is that the Federal Reserve’s Board of Governors is semi-independent. In fact, Fed governors serve a seven-year term. Therefore, it will take Trump several years to replace the Fed’s board.
For this reason, Trump may not get the economic policy he wants until 2020. Ironically, the Donald’s successor will probably enjoy the benefits of his economic policies.
How Speculators can Cash in on Dollar Devaluation
On the positive side there are many ways speculators can profit from dollar devaluation.
The most obvious method is to buy commodities and instruments seen as dollar alternatives. Obviously, that includes cryptocurrencies, precious metals like gold, silver, and palladium and many futures.
I believe cryptocurrencies, which are liquid, are the best alternative for average people. However, wealthy people might be better off with gold or palladium.
To put it another way, average people should stay away from precious metals. Unless they know of supermarkets and gas stations that accept gold or silver in payment.
Cryptocurrencies are better for average people because you can sell them fast. Therefore, you can quickly get cash when you need it.
More importantly, cryptocurrency credit and debit cards are technologically possible right now. Unfortunately, Visa (NYSE: V) and MasterCard (NYSE: MA) are blocking them but that can change.
What are the Best Dollar alternatives?
Buying fiat currencies viewed as dollar alternatives is another intriguing strategy.
Specifically, the Swiss Franc which is an alternative to major power currencies is popular with some speculators. Another intriguing alternative is Britain’s Pound Sterling. In particular the pound is the currency in one of the world’s great banking centers – the City of London.
An intriguing contrarian option is the Euro, accepted throughout Europe. Importantly, the Euro is Germany’s official currency and Deutschland has the world’s fourth largest economy. To enumerate, the Euro is already more valuable than the dollar. The exchange rate was €1.18 to $1 on 23 September 2018.
Emerging banking centers like Estonia use the Euro as their official currency. Consequently, Euros could be easier to exchange than the Swiss Franc or the Pound.
For this reason, Americans seeking a haven to ride out coming economic storms should consider the Euro. In particular, there are 27 EU countries a person can move to. Historically, economic refugees from the United States, Africa, Asia, the Middle East, and Latin America flee to Europe. That might increase demand for the Euro.
How you might make money when America devalues the dollar
An intriguing option is exchangeable cryptocurrencies like the Goldmint (MNTP), Bancor (BNT), Ripple (XRP), and the DAO (DAO). Significantly the exchangeable cryptocurrencies are designed for fast conversion into other altcoins, fiat currencies, and precious metals.
Everybody must realize that America will devalue the dollar and prepare for it regardless of their opinion of devaluation and speculators. Those who understand why dollar devaluation is coming and grasp its significance will make money.
People that get caught by surprise when America devalues the dollar will lose money. However, those who see dollar devaluation coming could make money from it.
Please note that this commentary is merely an opinion. Please do your own research and thinking before speculating.