The Dangers of the Strengthening Dollar

A strengthening dollar is good news for any recovering economy, right?  Given the dollar’s current soaring value and the continued improvement of the U.S. economy, such would seem to be the case. However, a strong dollar isn’t always a sign of good times to come, as financial money manager and radio host Dawn J Bennett  recently discussed with Dr. Paul Craig Roberts, Former Assistant Secretary to the Treasury.  In what ways is a strong dollar potentially dangerous?

dawn j bennett devalued dollar

According to Roberts, part of the reason the dollar carries the potential to incite negative consequences is because of its role as the world’s reserve currency, which has allowed it to wield disproportional power over the currencies of other countries. This presents some notable disadvantages, including the fact that any unwise monetary choice we make will most certainly negatively affect the rest of the world. Take for example, our current fiscal policies. The Federal Reserve continues to print large quantities of money as part of its multiple quantitative easing efforts, and has also implemented markedly low interest rates; a 10 year Treasury bond holds an interest rate of just 1.87%. Were the GDP of the United States increasing in tandem with these low interest rates and influxes of currency, there wouldn’t necessarily be reason for concern. But, as Roberts points out, given that the value of our goods and products have actually remained stagnant, the Federal Reserve is priming the well for a major bout of inflation—not to mention positioning the strength of the dollar as an asset bubble itself. In short, were the dollar to sharply decrease in value as a result of inflation, so too would the value of holdings around the world. The unsound practices the U.S. implements today therefore won’t just hurt our own economy when they inevitably “burst,” they’ll deliver a blow to the entire global economy.

A dollar that maintains too much strength also weakens the success of U.S. big business. The stronger the dollar, the weaker the currencies of other countries; while Americans benefit from cheap imports under a highly-valued dollar, our big business exports end up costing foreign purchasers much more, and in turn reduce sales. According to a Washington Post article, recent stock market decreases already serve as indications of how big business is losing out to a stronger dollar.

What’s more, the dollar’s integral role in the world market has unfortunately been leveraged to suit the U.S. political agenda. Economic sanctions have become a frequent course of action for coercing nations to fall in line with our objectives as a result of the dollar’s necessity to economies around the world. Those like Bennett and Roberts find it hard to believe that the dollar will avoid devaluation in the coming years given these increasingly unpopular sanctions. Already nations like Brazil, Russia, China, South Africa and India are moving away from the dollar and forming their own international currency.

Ultimately, as Roberts suggests, until the United States takes a less “arrogant” approach to how it deals with the dollar and reverses unsound fiscal policy, we can expect that the dollar will no longer reign supreme.

 

Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill.

For more information, call 866-286-2268 or visit http://www.bennettgroupfinancial.com

Securities offered through Western International Securities Inc. (WIS), member FINRA/SIPC. BGFS and WIS are separate and unaffiliated entities.

About Dawn Bennett

Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com

She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.

She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett ordbennett@bennettgroupfinancial.com

 

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