For as long as the US Dollar has been the world’s reserve currency, it has been the ultimate safe haven bet. But geopolitical and economic reasons are gaining traction which might just displace it from the coveted position.
The US Dollar is going up, up and up. It is the ultimate safe haven in the world of investing, because the US Dollar is the global reserve currency, which means that if and when there will be a currency crisis, the US Dollar will be the last one standing. So in a fearful, nervous economy like ours today, the US Dollar remains strong.
This affects America’s trade and balance sheets, though. The process of Quantitative Easing, which happened over three iterations over the last four years, is a means of pumping printed money into the economy in an effort to weaken the dollar, so that America can become competitive in terms of manufacturing and other businesses. But the more they print, they stronger the dollar becomes. In their bid for inflation, The Federal Reserve bank has tried to cheapen their currency over the last five years, but have only succeeded in inflating asset bubbles, in stocks and real estate.
The bubbles are getting bigger and bigger by the day. And yet no one knows when they will pop.
The US Dollar has always remained the ‘safest trade in the world’, but now, with a currency crisis looming, there is a good chance that confidence in the dollar will break, and that the values will revert to the mean, as they often do in the financial world. The only problem is that one cannot tell when this will happen. It could happen tomorrow, or it could stay off for the next five years.
The other thing to notice is the falling oil price, which is being artificially kept low by the Middle East. This is deflationary, which means the real value of US debt will only go up in the next few years. That is likely to put further downward pressure on the dollar.
So this might just be the time to take another look at ‘the safest bet in the world’.

Deepak Gopalakrishnan

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