3 Tips Before Trump Dumps the Dollar

Donald Trump wants to dump the dollar. Here are 3 practical (but money saving!) things to do before the dollar is out on the street.

Our currency is too strong. And it’s killing us.
— Donald Trump

This Valentine’s Day, our friend is about to get dumped. It’s heading to splitsville because it’s gained some heft. It’s not flab, though: the Dollar’s gotten too muscular.

In oversimplified terms, the dollar is “strong” when it’s desired. And what makes it alluring are many of the same reasons we’re attracted to people:

  • Higher Interest Rates: As in real life, we’d rather date someone “interest”ing. People with no interests are unexciting; so are low interest rates. (This is where you tell me that savings rates have been super low. True, but so are interest rates in other countries. And they may not have as much of the below to offset the low interest rate.) The Federal Reserve—which is the real bank of America—sets interest rates and controls the amount of money sloshing around, which can create scarcity.
  • Scarcity: When the dollar’s dance card is filled, we covet the few remaining spots. It’s like the first episode of every season of the Bachelor or Bachelorette, where minute after minute, a new contestant emerges from a black limo. The more contestants there are, the more they whip themselves into a frenzy trying to impress the one bachelor or bachelorette. (At least I think this is what happens in the first episode… I will admit to not actually watching the show). So anyway, the government will sell some treasuries (which are basically government bonds, which are basically loans) in exchange for dollars. For example, if you buy $10,000 of Treasuries, that money goes to the Fed and the government now owes you $10,000 plus interest at a rate that they set (see the first point). The bucks stop there and don’t go back into the financial system. The money supply just shrunk by 10,000 dollars.
  • Stability: Volatile personalities make for poor relationships, DON’T YOU THINK??? We don’t like uncertainty, not knowing if one day it’s going to be peace and another day WAR!!! So volatility creates UNCERTAINTY!, and uncertainty creates RISK!, and if you’re hoping to get paid back in dollars, you want those dollars to be… stable.

For years, the dollar has been the belle of the ball. That might be changing soon. When you have a strong dollar, it’s cheaper to make things in countries where its currency isn’t as strong. This has been great overall because it made things cheaper. But it’s also displaced a lot of people whose jobs were shipped overseas. ‍

Trump wants to put a leisure suit on the dollar.

 

The theory is that if we have a weaker dollar, manufacturing (and jobs) will return to the US. I think you might see some of that, but manufacturing is likely bringing with it fewer jobs. With better technology, you don’t need as many workers to make the same amount of things. By itself, making the dollar ugly might not make America as beautiful as hoped.

So what does this desire for a weaker dollar mean? Watch for storm clouds on the horizon for this relationship.

The Rain

(As remixed from the greatest breakup song ever by incomparable Oran Juice Jones.)

Come on in here Dollar. I’ve got some hot chocolate on the stove waiting for you. First, let me hang up your coat.

How was your day today? Did you miss me?

I missed you too.

I missed you so much I followed you today. That’s right, I followed you on the USDX index. Now close your mouth ‘cause you’re cold busted.

Just sit down here, sit down here. You’ve gotten so strong and I’m so upset with you I don’t know what to do. My first impulse was to fire up the printing press and flood the streets with your currency. But I didn’t wanna mess up this thirty-seven hundred dollar lynx coat. So instead, I chilled.

That’s right, chilled.

I called up the bank and dropped their interest rates.

Then I cancelled all your foreign credit lines and eliminated your current account deficits. That’s right.

I raised tariffs on every piece of jewelry I ever imported for you. Every single one.

Don’t go looking in that closet ‘cause everything you came here with is packed up and waiting for you in the guest room.

What were you thinking? I gave you silk suits, blue diamonds and Gucci handbags.

I gave you things you couldn’t even pronounce.

But now I can’t give you nothing but advice.

(If you don’t know this song, stay until the monologue. It’s Shakespeare in 5 minutes.)

3 Tips Before the Dollar Gets Dumped

  1. Travel Abroad: A strong dollar means that it’s cheaper to travel to other countries. Spending on travel makes you happier than spending on stuff. Plus, it’s important to experience different cultures.
  1. Eat In: According to the US Department of Agriculture, 2016 was the first time since 1967 the supermarket prices declined on an annual basis. With the strong dollar, you get less money when you sell your things to different countries (export). This means that more of the food made here stayed here. This led to a glut of food in grocery stores. I’ve heard it takes about 18 months for beef producers to normalize supply, so 2017 will continue to see cheaper steak, but probably not 2018.
  1. Get Your Budget Right: If we start taxing imports (tariffs), then things will get expensive. The cost of the tariff will probably be spread between China (or whatever country made it), the company, and you. China might impose a tax cut, businesses will be less profitable, and they’ll raise prices. So take this chance to get your budget right.

Breaking Up Is…

All these terms may seem like a bunch of gobbledegook, but they have real-world consequences. Now, will it happen? Will we successfully weaken the dollar? And if so, will it lead to the prosperity we hope?

No one truly knows.

All we have are theories. But, two things we do know: break-ups are ugly, but they’re also hard to do.

 

 

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