My take on the future of the dollar is somewhat like the title of the classic spaghetti western, The Good, The Bad, And The Ugly.

Taking each in order, first let’s consider the good:  All fiat currencies have no intrinsic value – their value is “comparable.” That is the value of a fiat currency is determined by comparing it to other currencies – and that is why FOREX is trading in pairs of currencies. As bad as things are for the dollar, comparatively speaking, it is in pretty good shape.

The bad should be obvious to anyone. The US is carrying a tremendous load of debt – and adding to it at an alarming rate that is unsustainable. And to make debt matters worse, interest rates have been ridiculously low for far too long. That is likely to change soon. The FED can control short-term interests, but they cannot control long term interest rates – that is done by the market. A significant rise in long term rates will put pressure on the budget. Very tough budget decisions are coming at the US in the foreseeable future – no good choices – just bad vs less bad.

Now the ugly part. As bad as things are looking for the US dollar it still shines in comparison to other major currencies. The British pound still faces unknown consequences of Brexit. The euro faces a fight for its very survival as some members reach a point that they simply cannot comply with the rules, even if the rules are bent in their favor. The yen is burying itself in debt even faster than the US dollar. And China has debt problems that are a big question mark. So we have a contest, not of beauty, but of “least ugly.” – and the US dollar clearly is the least ugly of the contestants – for the next year or so.

But the world ship of financial stability is sailing into some very rough waters – and longer term no one knows what is about to happen.

That should explain why I am a short term trader.

On that bright note, we bid you good day!




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