Game of Trades: This is the Single Biggest Threat Today
While most investors may focus their investment ideas on the stock market, financial markets are driven by something more fundamental.
That something is the U.S. dollar. America’s currency is a powerful financial tool that has been at the centerpiece of the global economy for over 70 years. However, a number of trends have formed that are weakening that position. It may not end soon, but it does point to a more challenging future for investors.
Historically, the dollar has had some of the lowest inflation among the world’s currencies. That’s made it an excellent reserve asset. The dollar has also been key for settling international trade. Even between two countries without that trade passing through the United States.
However, rising inflation and soaring budget deficits mean that the dollar is no longer the attractive venture that it once was.
The overall purchasing power of the dollar has slid by 20% alone in the past few years. That’s thanks to the money printing from the pandemic and beyond. A further decline could have major consequences, as other countries look for alternatives to their dollar holdings.
If the dollar becomes less popular in international trade, it will be more difficult for the United States to print money without feeling the full brunt of the inflation that comes with that.
That could mean higher inflation overall, which tends to bode poorly for stocks but stronger for commodity markets.