Is There Hope for 'Made in USA'? The Chances Are Slim to None
Luke Gromen is very busy man and this is a summary of some of his projections surrounding the US economy and then I decided to sound off too.
Gromen argues that the Federal Reserve is in a difficult position due to the US government's fiscal situation. He believes the Fed is "stuck" with low interest rates because the government cannot afford to service its debt at higher rates.
According to Gromen, the Fed is being compelled to cut interest rates not because of cooling inflation or a slowing economy, but due to the government's poor financial state. This situation "requires" low rates to manage the mounting debt.
Gromen suggests that the government needs to artificially boost the stock market to increase tax receipts. This is because, in his view, America doesn't produce enough goods, so stimulating the stock market is one of the few ways to increase government revenue.
Dollar Weakening
As a consequence of these factors, Gromen predicts a weaker US dollar over the next year. Specifically, he forecasts that the US dollar index (DXY) could drop by up to 10%, which would be a significant decline for the world's reserve currency.
Gromen differentiates between short-term and long-term predictions:
Short-term (1-2 months): He expects the dollar to strengthen slightly and markets to remain volatile.
Long-term (12-14 months): He anticipates the dollar will weaken, potentially dropping to the low 90s on the DXY index.
Despite these challenges, Gromen believes the US economy will be stronger than many expect, which could lead to higher stock market valuations
In summary, Gromen's predictions paint a picture of a US economy facing significant fiscal challenges, with the Federal Reserve caught between managing inflation and supporting an overburdened government budget. His forecast suggests potential turbulence for the US dollar and financial markets in the coming year.
Jon Little Offers his opinion.
A weaker US dollar can have several significant consequences for international trade. Generally, it benefits American exporters by making their goods and services relatively cheaper for foreign buyers. This increased price competitiveness often leads to higher demand for US exports, and historically, periods of dollar weakness have shown strong growth in this area.
But there is one big problem here in the USA and it’s called Work Ethic.
The United States has lost its manufacturing edge in heavy industry over the past few decades. The workforce has weakened, and the education system is producing students who lag behind their Asian counterparts in key subjects. American culture has shifted towards entertainment, streaming and social media cultural wars, with many becoming complacent and distracted. You can’t just push the "Made in USA" button.. It would be like trying to play against a seasoned NFL team but missing your years in High School and College Football, not attending regular practices and skipping the pre-season. Manufacturing is longer ingrained in our national ethos. - Jon Forrest Little
On the flip side, a weaker dollar makes imports more expensive. As the cost of goods and services purchased from abroad rises, consumers and businesses may face higher prices, which can contribute to inflation. Companies that rely heavily on imported inputs may experience increased costs, affecting their overall profitability.
The dollar's strength also has broader implications for global trade dynamics. Typically, there is a negative correlation between the strength of the dollar and global trade activity; when the dollar weakens, overall global trade tends to strengthen. This shift can enhance the competitiveness of US firms against foreign competitors, allowing them to capture a larger share of international markets. US will be strong in areas like tech, oil and gas, robotics and other niches.
Moreover, the value of the dollar influences financial conditions for international trade. A stronger dollar often correlates with tighter financial conditions, which can adversely affect credit availability for exporting firms. In some cases, this financial channel may outweigh the benefits of increased competitiveness that come with a weaker dollar, especially for companies involved in complex global value chains.
Finally, a weaker dollar can impact international investment patterns. It may lead to increased foreign investment in US assets since they become relatively cheaper for international investors. This influx of capital could potentially offset some of the negative effects associated with rising import costs and inflation.
In summary, while a weaker dollar generally boosts US exports and enhances global trade dynamics, it also leads to more expensive imports and potential inflationary pressures. The overall impact varies based on numerous factors, including the structure of a country's economy and its role in global value chains.