Trust the US Dollar For the Long Run

Some economic forecasters seem a bit prescient. Christian Broda is one of the academic intellectuals that has made economic predictions with astounding accuracy. He has published many whitepapers with predictions that proved true. For example, in 2009 he published a paper that accurately marked out the forces in the world’s money markets that he said would keep our current low inflation rate for a long time. And here we are, several years later, continuing to enjoy a rate of inflation that is less than 5%.

Most other economists share an opposing view. They believe the days of an entitled America are ending, and that the negative effects of massive debt will soon catch up to the US economy. Mr. Broda’s opponents also say the catalyst will be the fall of crude oil alliances, which they believe will automatically lead to the fall of the U.S. Federal Reserve, ending the power of the US dollar. A leading pundit of this darker view is James Rickards, who wrote the bestselling book, “The Death of Money.” In the book Rickards outlines case histories of US events in the past, such as when the Civil War was fought, that resulted in the dollar’s instability, which led to problems in economies throughout the world. Many other economists supporting his views.

Christian Broda points out that while the US dollar has lately shown weaker results in the world’s money markets, it is still the main choice for currency in most areas of the world. This view directly confronts the gloomy predictions of the naysayers. Mr. Broda’s reply is that foreign currency has overall weakened, but the US dollar instead is actually growing stronger, which anyone can see if the actual data is analyzed. Thus, he has refuted those decrying the impending fall of the dollar by showing that ups and downs in money markets are normal. He shows several events in history when the naysayers predicted the fall of the dollar, and yet it never occurred.

A lot of the negative view centers on changes the Fed has made, especially around Quantitative Easing (QE). Christian Broda takes a longer view. He stated, “Now that the Fed may actually exit, the natural conclusion is that the dollar should strengthen even further… Japan is still doing QE, Europe is opening that possibility in recent weeks. It seems wise to keep your investment in the US, and think twice about following the conventional wisdom that emerging markets is the place to put your money.”

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