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Has the USD already failed?

Why the writing may in fact be on the wall.

That takeaway is this, $USD momentum will be halted due to the massive liquidity injections.

But before we get into the nitty-gritty of how we got here, this story begins in ancient Babylon, now commonly known as Bagdhad.

To cut a long Old-Testament story short, the last king of Babylon hosted a grand feast, while his city lay under siege from the Persians. This revelry led to drinking from sacred vessels looted from the First Temple.

Upon drinking from the vessels, a hand appears and writes ‘mene mene tekel upharsin’ on the palace wall.

While initially the message could not be deciphered, it was later interpreted as;

Belshazzar had been arrogant, and reckless and this was his recompense.

That night he was murdered, and the Persian’s took the city.

And thus, with acute accuracy, the writing had been on the wall — only Belshazzar couldn’t see it.

Recently I sent an email to Lyn Alden of Alden Investment Strategy which asked her about her outlook for the US dollar-based on recent QE. I will go through her concise answer below in sections to make it easier to digest.

Because the US Dollar serves as the world’s reserve currency all countries, especially the U.S., need liquidity in the form of U.S. dollars to meet their financial obligations and liabilities.

A dollar shortage occurs when a country lacks a sufficient supply of U.S. dollars (USD) to manage its international trade effectively. This occurs when a country has to pay out more U.S. dollars for its imports than the U.S. dollars it receives from its exports, in addition, to lacking enough USD to service its dollar-denominated debts.

Because the U.S. dollar is the world’s most widely traded currency, many nations must hold assets in dollars to maintain a steadily growing economy and to trade effectively with other countries who use U.S. dollars.

So, because of this, the $USD is most likely overvalued.

The Net International Investment Position (NIIP), is basically the difference between how much assets a country owns of the rest of the world, minus the number of assets the rest of the world owns of their country. Since 2008 this number has been bleak. This chart goes back to 1976 and shows when the US was in surplus.

This metric does not just include assets owned, it also encompasses dividends earned and remittances. So dividends leaving the country versus coming into the country, and money being earned in the US leaving versus money being earned overseas and coming back into the States.

In total, the NIIP currently sits at negative $9.717 trillion.

Put simply The U.S. was once the world’s largest creditor nation and is now the world’s largest debtor nation.

Currency strength has many variables, but the strongest long-term variable is the trade balance.

Currencies eventually find equilibrium around their trade balance. The dollar status as the reserve currency, along with the current dollar crunch, in particular, has prevented this from happening for the US. Thus, the $USD tends to remain overvalued.

Because the dollar shortage has been addressed somewhat with the Fed’s profound money printing, the dollar should weaken towards equilibrium value.

To go into this in further detail you should check out Lyn’s (@LynAldenContact) incredible Twitter thread below.

Since Trump came into office, annual deficits and debt levels have ramped upward, in a comparatively strong economy.

This is one reason why Bridgewater Associates’ Ray Dalio is bearish on the dollar.

Yields must increase to compensate for lower demand.

Robert Kiyosaki, the author of #1 New York Times bestseller ‘Rich Dad Poor Dad’ (a book that advocates the importance of financial literacy) is also extremely bearish on the USD.

This is particularly interesting given his core audience are retail investors, who would expect his commentary to be conservative, and risk-averse. This is this brand he has built, and the audience his risks alienating, and yet the tea leaves are clear.

The global economy on the back of the troubled USD is now teetering on a very narrow ledge, with very little to catch its fall.

At this point, it should be clear that the US economy and its “exorbitant privilege” as conductors of the reserve currency are under threat.

But as I outlined a few weeks ago, Bitcoin was designed for this exact moment.

Even Forbes is now reporting Bitcoin as a safe-haven asset!

This was followed up by Bitcoin commentator Pomp summarising the situation well when he put the opportunity into context;

Now is the time to be entering the crypto market, as this is the exact moment it was designed for.

At this point, if you cannot see the writing on the wall — well maybe your name is Belshazzar!

Mine Digital is the lowest cost fiat to crypto exchange in the world!

Dion Dalton-Bridges

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