Dollar under pressure today
Markets have generally shrugged off the shocking wave of protests in the United States over the weekend but the one exception is the US dollar, which is under broad pressure.
Why?
It's simple. Widespread protests have two possible outcomes:
- Social reform
- Increased authoritarianism
Either one is expensive.
The US is running a $4 trillion deficit this year and another $3 trillion spending bill has already passed the House.
However this ends, it's going to mean even more spending. I can't offer any kind of novel take on the social situation but it's increasingly clear to me that we've entered an era of runaway spending.
It's going to be a global phenomenon but the pressure to generate growth is especially high and as the world's reserve currency, the rest of the globe is in a position where it needs to finance US spending. Given that we're on a path to debt monetization, the US dollar more to lose than almost anywhere.
Moreover, massive deficits can last for years. I think Washington could run $5 trillion deficits for a decade before it truly undermined the economy. For now though, all that spending is great for commodity producers because it's going to mean better demand.
Finally, the US fight with China isn't going to end no matter what happens in November. The great decoupling is coming.