Rising Debt Means A Weaker Dollar

The comments below are an edited and abridged synopsis of an article by Stephan Gleason

American’s national debt is officially $28.1 trillion and counting, and it adds to concerns about the US dollar.

Rising Debt Means A Weaker Dollar | BullionBuzz | Nick's Top Six
Man pushing a sphere up on an arrow . This is a 3d render illustration . Rising debt concept.

Federal debt is currently the largest as a percentage of the economy since World War II. Given that no amount of tax hikes will yield enough capital to cover the debt, the US now finds itself on an unsustainable trajectory towards bankruptcy.

The only way for the government to dig itself out of its debt predicament is by leaning on the Federal Reserve.

The Fed now buys $120 billion in bonds every month, artificially suppresses interest rates, and intentionally targets higher inflation. These maneuvers make issuing and servicing government debt cheaper in real terms.

The national debt went unnoticed for years. The consequences of massive overspending are becoming increasingly clear, however. Among them are a weaker dollar and decline in national credibility.

As the US dollar loses value, it could also lose its preeminent spot on the international stage.

Gleason discusses other countries moving away from the dollar; the addition of the Chinese yuan to the IMF’s special drawing rights basket; nations around the world diversifying away from the dollar; how the weaker dollar affects government and the public; what happens when disposable income declines; debt-driven dollar weakness, rising interest rates, and the risk of recession.

It is a critical to diversify portfolios with asset classes that can potentially benefit from a weaker dollar. Gold and silver have long been considered the ultimate hedges against paper currency weakness. This time will be no different.

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