Is the dollar exchange rate regime about to break?

support.teamEconomics, FREEPOM

Apple Manufacturing iPhones in America, Ford Not Moving Factory, and the Dollar at Record Highs – What Do They Know?

By JC Collins

Is the dollar exchange rate regime about to break?

Contrary to the pre-election propaganda, the financial world did not end on November 9, 2016.  Much like with the BREXIT vote, the opposite happened and markets reached new highs and everyone started to agree on re-negotiating trade deals and making new alliances.

The US dollar is strengthening at a dramatic rate, which is weakening the currencies of emerging nations.  The Chinese renminbi is depreciating against the dollar and even the Japanese yen is now at an 18 year low.

But this cannot last.

A high valued dollar works against the economic and monetary goals of the United States.  It also further weakens the world economy and monetary system.  It is the amplification of the imbalance in the system which is meant to be corrected.

This ongoing bout of dollar strength could very well lead to the forced and strategic breaking of the US dollar exchange rate regime which has been in place in various forms since 1944.  The alternative framework for this transformation has already been established and put into play.  The swap arrangements with the renminbi along with platforms for SDR bond issuance are ready act as a safety net when the dollar regime finally breaks.

It has long been my conclusion that the USD will depreciate as the multilateral system begins to emerge.  This is what we could be witnessing now as the strengthening dollar makes the case for fundamental changes to the framework.  Whether Trump promotes a devaluation of the dollar or the exchange regime breaks and a new normal is developed matters not.  What does matter is that the valuations will be adjusted in order to bring balance to the international monetary system.

A devaluation of the USD will make American exports cheaper than they are today.  This has been the thesis which I presented here for the last three years and the events since the election of Trump would support this.

The fact that most nations are now openly expressing their willingness to renegotiate trade deals and cancel others, along with companies doing an about turn and staying in America, would further support what we have been reviewing.

Apple is now saying that they may begin to manufacture iPhones in America.  Ford has announced that they will not be moving the Kentucky plant to Mexico.  It’s only been ten days since the election and dramatic changes are already beginning to occur.

The reasons for this should be obvious to most long time readers.  A depreciated dollar means cheaper exports, which means companies can begin to manufacture in America again and export the products around the world.

Think of it as a reversal of Bretton Woods.

This increase in American manufacturing will mean more domestic jobs.  More job and manufacturing means an increase in GDP.  An increase in GDP means a lower debt-to-GDP ratio.

The dollar may be strengthening right now but the actions of Ford and Apple, not to mention the changes to trade deals, would strongly suggest a change to the valuation of the dollar is coming.

The picture is beginning to come into clearer focus.  The timing is always hit and miss but we should start watching for signs of a USD exchange rate regime break.  China has already partially moved forward with this by setting up an alternative exchange regime with a basket of currencies.  The shift away from the USD regime by some nations should not be that difficult at this point.  It may create some temporary instability and move a massive amount of wealth around the world, but things will level off rather quickly.

It’s fascinating to watch this whole transition unfold.  – JC