Do you remember the 1989 movie Uncle Buck? It was intended as a comedy but ended up a tragedy. An economic foreshadowing. One of a slovenly, out of shape oaf, driving a smoke belching, ’77 Mercury Marquis. It’s the beckoning of a last resort babysitter when all the adults have left for a long weekend. All sensible options have been exhausted. So, we’re stuck with Uncle Buck (UB) a.k.a. the US Dollar.
A once proud, lean mean economic machine: UB has spent the past 30 years morphing into Jabba the Hutt. But before we get into UB’s ill conceived dietary practices, let’s trek around the globe for some fiscal perspective. I guess if we classified UB as obese, the rest of the world currencies would be anorexic.
Relative to other currencies, UB is up 19% year to date and at its highest value since 2001. Rising interest rates have attracted investment to the dollar and away from other currencies. And while it might seem implausible, the US economy is doing relatively much better. Simply put, we’re the funniest Prussian. More on them later.
Why does this matter? The global currency markets are huge - $6 trillion daily volume vs just $55 billion for the US stock markets. Uncle Buck’s strength has crippled emerging markets as they borrow debt dominated in dollars. While booking a trip to Europe has become easier on the pocket, US exports are much more expensive, thus impairing multi-national’s earnings. You want your 401k to recover? Root against the Buck. Even the Euro has broken parity with USD – now .97/1. The Japanese Yen an even more anemic 146/1.
The US has earned reserve currency status through it’s military, economical & political strength. Winning World War II was the impetus. And it further solidified it’s status by standardizing oil prices to dollars in the early 1970’s. Hence the Petro Dollar. There’s a reason the US is playing whack a mole with never ending wars – no, not the gospel of ‘democracy’ or whatever propaganda the moldy, Pumpkin-in-Chief teleprompts from the Oval Office. When the dollar comes in peril; the US will pick a fight - purely to defend it and the Treasury’s perpetual printing press.
Conjecture Alert: The US defacto fighting the Ukraine war to defeat Russia would further destabilize Russian/German relations (blowing up a pipeline might do the trick as well.) Thus, avoiding oil/gas traded in Russian rubles & bypassing the dollar. Let’s face it: the Germans are frenemies, at best, with the US. They have long memories from the World War II trouncing. Trust me – I’m married to one.
So, what’s the future hold? The current national debt is $31 trillion & counting.[i] {Hide the children before clicking on that link.} For reference, the country’s GDP is around $25 trillion annually. Just servicing the debt may become untenable: currently paying 1.67% which may rise to 4.6% (based on average bond maturity of 6.7 years.) This would balloon just the annual debt payments to over $1.4 trillion. [ii]
The US will never repay this. The math simply doesn’t add up. In the near term, the US will continue to pull a Wimpy and promise later payment for a hamburger today. But at some point, the disconnect will happen. Perhaps Uncle Buck is the last stand for paper currencies – all of which are an issuance of fiscal decay. Maybe the New World Order will just mandate a digital fiat – in effect wiping out all currencies. The good news is all your financial transactions will be tracked.
While all this might seem like a shoddy Logan’s Run[iii] remake, my senior research analyst, Molly, is on-board. She’s enthralled with Rosland Capital’s gold commercials, worries about big government & calls me Tucker on occasion. I suspect she leans a bit right - subtly trying to feed me a steady diet of The Epoch Times with my Wednesday tuna salad. And she kindly offered me a subscription or a monogrammed robe for my upcoming birthday. Quietly hoping an option C emerges.
Fiscal Fitness is a publication of Houlihan Asset Management, LLC for the benefit of its clients and friends. Houlihan Asset Management. Wealth Counseling/Asset Management. Copyright 2024