Crude oil has proven to be a problem for several developing countries and these days, challenges abroad, combined with an increasing dependence on the USD could equate to the same for the United States. Petroleum makes it possible for national leaders to participate in socialist incentives, soothe elites by filling their bank accounts and merge dictatorial power with no need to make the types of comprehensive investments in industrial sectors and human resources that guarantee enduring wealth. Venezuela is falling apart as the funds run out and it appears that Saudi Arabia will as well.
Wanton politics and financial policies in Europe and Asia are helping to make the euro, yen and yuan unappealing as long-term ventures. Fund managers and pensioners are wise to off-set their portfolio with dollar-driven securities and where possible, U.S. real estate. Theresa May, who did not back exiting during the Brexit campaign, has cautiously steered Brits into accepting colonial status within the European Union. Continue being part of the customs union with no real say regarding policies, or break away completely with no strategy for how to manage itThe EU triumph over Brexit will frighten Italy and other subjects of its frustrating macroeconomic, currency and immigration laws from challenging systemic transformation or ultimately leaving. Germany, which primarily dictates regulations, will proceed to benefit while Europe’s southern region continues to be forever near or in an economic recession and growth on the whole remains slow.
Japan’s populace and labor force are growing older and diminishing. Labor force and strong economic advancement cannot be maintained unless women achieve a bare minimum fertility rate of 2.1 or the population is expanded via immigration, which the Japanese culture on the whole tends to resist. Prime Minister Shinzo Abe can fortify banks, split up industrial cartels and change labor markets, but unless his initiatives to raise immigration increase quite a bit, Japan will suffer. Should the yen one day become worthless, investors will find that they were wise to purchase U.S. Treasuries and real-estate.
Chinese President Xi Jinping has branded himself as president for life and enforced tougher regulations for private firms, central preparation and electronic tracking and intellectual conformity on average citizens. Making an invested in the yuan would be similar to purchasing Mussolini war bonds back in 1939. The dollar’s portion of cross-border financial debt financing has climbed to 62% despite the fact that the United States accounts for one-fifth of the global financial system. Forty percent of overall cross-border trade is completed in dollars. This includes German exports, despite the fact that only 6% make their way to the United States.
Combined, these facts make it possible for U.S. residents to borrow growing amounts from foreigners and market U.S. real estate and additional assets at attractive price tags. The federal debt has more than doubled since 2015. All the while, long-term U.S. interest rates have not risen much by historical benchmarks. The 30-year Freddie Mac mortgage rate sits at 4.3% in contrast to the 6.8% level seen prior to the financial crisis and over 9% rate seen in the 1990s.
The main point here is that Modern Monetary Theory is to some extent correct – the United States can shell out funds for considerably more public spending. The global appetite for the USD allows Uncle Sam to operate the printing presses, but there has to be some limit. New Yorkers are forced to use a third-world subway system. Currently, eight hundred million dollars is being used for modernization, but it is estimated that $40 billion will be needed to have a system that is comparable to those in Paris or London. Oddly enough, politicians recently allocated funds to provide themselves with cost-free child care and compensated family leave.
Across the country, artificial intelligence is pushing advancement and development. China boasts a well-financed system, but the United States spending budget does not offer the same. Instead, more U.S. residents are struggling financially than before the economic crisis, and that fact acts as an ingredient for a recipe the some politicians have for transforming America into a socialist utopia similar to Venezuela.