A popular myth is that the US deficits and recent tax cuts are so huge and out of control that the global investment community will dislike the US economy and sell off their dollar-based assets, making the dollar collapse. Assuming the recent tax cuts aren’t as effective as thought and start to reduce the cuts due to pre-set changes in the law (the whole thing reverts back in less than a decade due to Byrd amendment) then deficits may not get that much bigger. The tax law of December, 2017 actually raised taxes on corporations with offshore operations and closed loopholes such as large personal state income tax deductions, causing some personal form 1040 taxpayers to pay more. The
Many articles have been written by other people forecasting that the dollar will decline, but I disagree. The huge and growing federal deficit is a concern, but it can be handled and reduced by switching to a European system of government controlled health care. Much of the deficit can be attributed to health care costs. A popular myth is that Americans don’t pay as much in tax as people in other Developed countries. But some articles written about this topic seem to only focus on federal income tax and not on payroll tax, state income tax, etc. Also, most countries, except the U.S., don’t tax their individual citizens on offshore earnings held in corporations located offshore. Many wealthy
Today Japan’s central bank refused to issue “helicopter money” saying it was unconstitutional. They refused to do anything today saying they needed time to study it. The Nikkei stock index fell 3.6% today (it was down 5% at the low of the day) when the news was announced. The Yen went up 3% which is bad for Japan’s exports. The worse their economy gets the stronger their currency becomes since it appears to somehow magically resist inflation, so foreigners want to hold the Yen. The central bank had recently experimented with negative interest rates but they are not producing results. Global central banks are finding that the zero bound problem is a real barrier to further rate cuts. It is
China has been selling $250Billion of U.S. Treasuries, about 12% of what the central bank owns, but this is only 2% of all of our Treasury issues and this will be offset by growing demand for Treasuries in EM countries, including the private sector in China, to own G7 sovereign bonds. China’s sale is roughly the same as three or four months of the volume of Quantitative Easing that recently ended so it is not that much. As the U.S. economy gets better then the federal deficit gets smaller and thus less Treasuries are issued. This can create a recession in EM countries who view Treasuries as a type of global “money”. There have been suggestions by some economists that
Investors enquire about Shiller investment valuations, copper bubbles, hedges against dollar devaluations and crashes. They wonder what happens to real estate if the dollar is devalued?
Investors enquire about asset allocation and black swan investing; will a falling dollar lead to economic collapse; what to invest in case of dollar collapse? They ask: how to protect against dollar devaluation? What happens to my investments if the dollar collapses? I have written “Dollar devaluation investing”.