Revisiting my past, a couple weeks ago I listened to Simon & Garfunkel’s reprise of the 1950’s national anthem of the peace movement, “Last Night I Had the Strangest Dream”. Their 1964 rendition from their “Wednesday Morning 3 AM” album, a simple two minute song, reverberated during my days of protesting the war in Viet Nam. Other than bringing it to your attention it has almost nothing to do with today’s article to the exception of everyone laying down their weapons and living in peace. That got me to thinking; in today’s world the war I fear the most is one fought with absolutely no bullets whatsoever, the battle to overthrow “King Dollar”.
The dollar has been the world’s principal reserve currency since the end of World War II. It’s still the most widely used currency for international trade. Its status as the world currency has significant economic, political, and financial implications. If the dollar were to lose its status as the world currency, there would be several potential effects:
Reduced demand for the dollar: If the dollar is no longer the world’s currency, other currencies, such as the Euro or the Yuan, would become more important. This would reduce the demand for dollars, which could lead to a drop in the value of the dollar relative to other currencies.
Changes in international trade patterns: Many countries use the dollar as the currency for international trade. If the dollar is no longer the world currency, trade patterns could change. Countries might begin to trade more with other countries that use a similar currency, which could lead to changes in global trade patterns.
Changes in the role of the US in the global economy: The dollar’s status as the world currency gives the US significant economic and political influence. If the dollar were to lose its status, the US would likely lose some of its influence in the global economy.
Increased volatility in currency markets: The loss of the dollar’s status as the world currency could lead to increased volatility in currency markets, as investors and governments adjust to a new global currency system.
Changes in global financial markets: The dollar’s status as the world currency has made US financial markets the most important in the world. If the dollar were to lose its status, other financial markets, such as those in Europe or Asia, would become more important.
If the dollar were to lose its status as the world currency, it could have a significant impact on inflation in the US and globally. Here are some potential effects:
Impact on imports: If the dollar is no longer the world currency, it could become more expensive to import goods into the US, as importers would need to exchange their local currency for a different currency before buying US dollars. This could lead to higher prices for imported goods, which could drive up inflation more than is currently taking place.
Impact on exports: Conversely, if the dollar is no longer the world currency, it could become cheaper for US companies to export goods to other countries. This could lead to increased demand for US goods and services, which could help to mitigate the impact of higher import prices. Unfortunately manufacturing in the United States is not geared to take advantage of what would be a benefit.
Impact on interest rates: The dollar’s status as the world currency has allowed the US to borrow money at lower interest rates, as global investors have been willing to lend to the US in large amounts. If the dollar were to lose its status, the US would find it more expensive to borrow money leading to higher interest rates and higher inflation.
Impact on global currency markets: A shift away from the dollar as the world currency could lead to increased volatility in global currency markets, which could lead to fluctuations in exchange rates and inflation rates.
Overall, the impact of the dollar losing its status as the world currency on inflation is difficult to predict and would depend on a range of factors. However, it’s possible that the transition could lead to higher inflation in the short term, as the global economy adjusts to a new currency system.
If the US dollar were to lose its status as the world currency, it could have a significant impact on international trade. Here are some potential effects:
Changes in trade patterns: Many countries currently use the US dollar as the currency for international trade. If the dollar were to lose its status, other currencies such as the euro, Chinese yuan, or even a new digital currency could become more important. This could lead to changes in trade patterns, as countries might begin to trade more with other countries that use the same currency.
Increased transaction costs: If the US dollar were no longer the world currency, it would be more expensive and time-consuming for businesses to convert currencies for international trade. This could lead to increased transaction costs, which could make international trade more difficult and less profitable for some businesses.
Changes in the global financial system: The US dollar’s status as the world currency has made US financial markets the most important in the world. If the dollar were to lose its status, other financial markets, such as those in Europe or Asia, could become more important. This could lead to changes in the global financial system, which could impact international trade.
Changes in the role of the US in the global economy: The US dollar’s status as the world currency gives the US significant economic and political influence. If the dollar were to lose its status, the US would likely lose some of its influence in the global economy, which could impact international trade agreements and negotiations.
Overall, the impact of the dollar losing its status as the world currency on international trade is difficult to predict and would depend on a range of factors. However, it’s possible that the transition could lead to changes in trade patterns, increased transaction costs, and changes in the global financial system, all impacting international trade in the short and long term.
If the US dollar were to lose its status as the world currency, it could have a significant impact on investments. Here are some potential investments that could increase in value:
Commodities: Commodities, such as gold, silver, oil, and other natural resources, could increase in value if the US dollar were no longer the world currency. This is because commodities are often seen as a hedge against inflation and a store of value, particularly during times of uncertainty in the global currency markets. Remember, basic commodity prices are based on the dollar; if the dollar goes down they’ll go up.
Emerging market currencies: If a new currency were to emerge as the world currency, the currencies of emerging market countries could benefit. This is because these currencies would likely increase in value as they become more important in global trade and investment.
Cryptocurrencies: Some investors may turn to cryptocurrencies, such as Bitcoin, as an alternative to traditional currencies if the US dollar were to lose its status as the world currency. This is because cryptocurrencies are decentralized and not controlled by any government or central authority, at least not yet.
Infrastructure and real assets: Investments in infrastructure and real assets, such as real estate and other tangible assets, could increase in value if the US dollar were no longer the world currency. This is because these assets tend to perform well during periods of inflation and uncertainty in the global currency markets.
This scenario has been in play for years. This time, actions or inactions as they may have been, give other countries and regions the ability to “attack” the United States and win a “war without bullets”. Should something of this nature come to fruition we, our government, our monetary gurus and above all our ineptly run banking system, one geared towards short term profits versus caring for their balance sheets, have no one to blame but themselves. Someday we’ll realize that true capitalism was the answer. Protecting any industry, even the banking industry, created unforeseen problems that only made the situation worse. Artificially low interest rates created economic strategies that were destined to fail. The Federal Reserve, in its far too late attempt to deal with what was to be a “transitory” inflation problem, took the correct action in raising rates. Problem was the financial management of those who claimed to be “banker managers’ backfired leaving more holes in the system than expected. So here we go again, call it whatever you want; I’ll call it a “bailout”.
It’s only fair to give Simon & Garfunkel a plug . . .
. . . after all, they didn’t cause this problem . . . Hope you enjoyed this post. I’m just a young 68 years old; my Dad became a broker when I was 13. It’s time for me to ‘give back’ to all of you what’s in my head. It’s not always pretty but while it’s usually based on history today it’s the future I’m worried about and there are some historical reasons . . . I’m a student of The Depression . . . Allen Meltzer was too. If we’re not careful that historical period could once again become our future . . . economically the worst has yet to come so hang in there and continue to sit on your hands; and your money. Might be a good time to buy gold . . . or Yuans.
Remember, learning how to trade is not a sprint; it’s a marathon. Everyone learns at their own pace. If you pick everything up the first time through, great but if not email me at dzimmer@substack.com so we can further help.
Originally published as https://tradrr.com/war-with-no-bullets/