For Long US economy has taken a shield behind the veil of its Currency Dollar. Dollar augmented its value and acceptance through a range of political decisions in the 70 `s and thereafter by the alert and visionary Administrative establishment of the US. Those decisions were then amply supported by the Fiscal prudence and disciplined monetary program.
Post 1990, Housing for all by Ronald Reagan was the turning point. It prompted the FED chairman Alan Greenspan who served for five consecutive unprecedented terms as FED chairman from 1987 to 2006 to adopt loose undisciplined monetary policy. It was an inconceivable truth from any standard of administrative mechanism that a country so blessed with talent and experimentation chose to accept a mediocre and suppliant head for so long, who worked for political patronage unmindful of consequential weakness to the entire financial system. The result was the 2008 Subprime crisis. What a mess and havoc it brought to American Financial System? What disgrace and distrust it entailed?
Post this crisis, the US economy never regained its base. The QE and tapering were two new experiments, and both failed as monetary largesse were never complemented by Fiscal prudence. China countered any remotest possibility of American Fiscal consolidation successfully through its astute currency and Current account management.
Pre Covid 2020, America turned out to be a ballooning economy largely on account of free cheap money, low interest rate and irresponsible dollar printing mechanism. The staggering addition of nearly 6 trillion printed dollars in 2019 -21 had nothing to boast of real addition in the economy. From food to machinery, the US is now overtly dependent on imports which are being financed by over leveraged states.
No economist now touches this chapter of over leveraging of an economy. Country after country are resorting to borrowing through reckless monetary plan and senseless revenue expenditure. The US including G 7 and excluding Germany will be the case study of future generations of economists how economies were kept floating in a punctured tube.
Coming back to the US, the Covid has exposed the shallowness of its strength. A coterie of elite experts who have mastered the art of convoluted speech and prevarication are still defending an indefensible. China despite its sin of sprouting Covid has been left unscathed. Rather China assiduously built a fair weather friendship with Russia. Together they are ideologically opposed to the US and have Himalayan aspirations in the financial world. Yuan is getting a lot of stability. The domestic consumption and Yuan denominated trade has taken off. The consequences are slowly improving for China.
The US which is printing and distributing dollars per month to its ageing and unemployable citizens is struggling to establish its manufacturing. American were never a great Saver. Rather the entire world saved the Dollar and deposited it in the US fed for their American Dream. Where is the dream now? The social harmony is sinking. Rhetoric and meaningless unrelated speech has emerged more important. Refugees from South America are unchecked and seamlessly arriving. In one sentence American has to import today even toilet paper forget foodstuff and Silicon chips.
How will you finance this record Import and galloping Current account deficit? Yes it is highest today in number. Resorting to borrowing? Raising Interest Rate? Asking the world to save and deposit in dollars? Or behind the dollar denominated Bonds.
You assess the trajectory. Unchecked supply of Dollar without adding a value to the real economy. No book in economics has defended such a messy situation. Wait to see what unfolds. Wait to see how Dollar negotiates the challenges? Till then keep an eye on the dollar denominated assets.
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