Countries have begun trading with each other with their own currencies already.
And although fracking our way to oil independence is a good thing, that trade deficit will also mean less petrodollars out to be traded or invested in U.S. treasuries.
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All true. But if the US deficit keeps falling—the need for foreign investment in US treasuries declines. That’s what’s in the cards right now. As long as the USA keeps adding 1 million barrels@ day annually to oil production—as it has for the last 3 years—the trade deficit and the federal deficit are going to keep falling. State government budgets of even incompetent blue states like California have already swung back in the black.
And as the trade and federal deficits decline —the pressure on the dollar is upwards—meaning that the dollars in foreign central banks gains in value. That puts downward pressure on both the price of oil and the price of gold.
For guys who are old enough to remember the 1970’s—ie US oil production peaked in 1970 and then declined sharply...— this environment is rewinding that decade backwards.
What does this mean for the QE’s. For now, the QE’s just keep the dollar from punching straight up.
I hope you are right as I do not wish for a dollar collapse. But I think the possibility is out there, especially if the gov’t continues to spend more than it receives (confiscates). If our increased oil production saves us, it will be in spite of the liberals, not because of them.
Yes. And as the dollar continues to rise, foreign imports get cheaper and cheaper causing the trade deficit to rise yet again. Floating interest rates are always and everywhere a disaster waiting to happen.
Out deficit has fallen. This is true.
But our debt has increased (except for the last 140 days or so.)
Deficits are worth noting. But in a higher interest environment, the size of the debt is going to be a problem. As we roll over more and more, those rates will have an impact. As we deal with more and more unfunded mandates, we will dip into that credit line.
I agree that there are some areas that are moving in the proper direction. I just think the inertia of the rising debt and the unfunded liabilities will squash the deficit improvements like a bug.