EXPLAINING A STRONG DOLLAR VS. WEAK DOLLAR
This video explains why a country would choose to implement a strong dollar economic policy vs. a weak dollar economic policy. What have past administrations utilized and why? What does President Trump utilize and why? There are implications to job growth and our investment portfolios with each of these policies. This video explains those differences and how we can prosper under each type of economic policy.
U.S. DOLLAR MONETARY POLICY
America has had a strong dollar since the Clinton administration
- Foreign countries buying American goods will pay a higher price
- Imports to America are cheaper
- 70% of everything American’s consume is imported—so we see deflation in prices (Our dollar buys more)
- The inverse is also true—American good are more expensive overseas.
A STRONG DOLLAR EXPORTS JOBS OVERSEAS
Jobs Follow Manufacturing
During the Clinton, Bush and Obama administrations, the strong U.S. Dollar caused imports to America to be less expensive. Therefore, American’s purchased more imports and we exported. Since American’s purchased more foreign goods JOBS had to go to the places that were manufacturing those goods. Therefore, a strong dollar brought deflation in prices as we imported cheap goods, but we also exported jobs overseas.
THE SWINGING PENDULUM
Trump wants to MAKE AMERICA GREAT AGAIN.
How does he want to accomplish this?
- Bring JOBS back to America
- He doesn’t want Americans or ANYONE for that matter buying Chinese, Indian, Mexican or European goods. He wants EVERYONE to buy American.
- To bring jobs back to America he needs to get the rest of the world buying our stuff.
Through a WEAK DOLLAR policy!
- Then imports will be more expensive and,
- Exports will be cheaper!
IS A STRONG DOLLAR ANTI-JOB?
This is a tough question. A strong dollar means that the currency purchases MORE foreign goods for less cost, and Americans are consumers! A strong U.S. Dollar makes consumers happy. However, when jobs follow manufacturing, a strong U.S. Dollar will export jobs to the countries that are manufacturing. Fewer American jobs means that fewer people are working, spending money, paying taxes, or generating revenue for American companies and the government.
BREAKING IT DOWN
- When people lose jobs they spend LESS money
- When more people are working, more people are spending
- When people spend less money, corporate revenues come DOWN
- When people spend more money, corporate revenues go UP
- When corporate revenues come down, corporate America LAYS OFF more people
- When corporate revenues go up, corporate America HIRES more people
So we end this section where we started—when more people are working more people are spending, and the more people spend more employers will be hiring.
WHAT COMES WITH A WEAK DOLLAR?
- Rising interest rates
These two go hand in hand. A weak dollar means fewer around the world want to invest in it. So, to entice investment in US treasuries, higher interest rates are required. The weaker US Dollar means prices will rise on imported goods and a shift in consumer behavior won’t happen quickly, thus inflation is coming!
HOW DO POLICY MAKERS SLOW DOWN INFLATION?
- By raising interest rates to slow down borrowing.
- When rates are higher and people are handcuffed by debt, they slow down their spending as their debt service increases.
- When they slow down their spending, businesses get hurt, stock valuations come down, people get laid off.
THE CHANGING TIDE
TRUMP INHERITED A COUNTRY THAT IS IN DEBT UP TO ITS EYEBALLS!
- Federal debt
- State debt
- Municipal debt
- Individual debt
- Corporate debt
One of the effects of a weak dollar is rising interest rates to slow down inflation. This will prove to be problematic as America is in debt up to its eyeballs!
WHAT HAPPENS WHEN INTEREST RATES RISE?
- People living at the margin will feel the pinch.
- They will get squeezed!When people living paycheck to paycheck see their expenses go up (as interest rates rise), but their income didn’t go up they will:
- Change their spending habits (economic slowdown)
- Sell stuff
- Go bankrupt
AN ANCIENT HEBREW PROVERB SAYS--A BORROWER IS A SLAVE TO THE LENDER
LET’S LOOK AT THE FOUR MAJOR INVESTMENT CATEGORIES AT THIS POINT IN THE MARKET CYCLE
- BOND MARKET: Not just DOWN, It will get CRUSHED!
- GOLD AND SILVER: UP
- STOCK MARKET: Initially UP, then DOWN
- REAL ESTATE: Down
CAN A PRESIDENT CHANGE ALL OF THIS?
Of course! Because past Presidential administrations caused this mess, present and future Presidential administrations can fix it—IF they are willing, as the fix will be painful.