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Friday, February 15, 2019

USD is likely to depreciate soon. Why?

The chart above is the current USD dollar index.  It looks like USD has reached or is reaching its 1-year peak.

The chart above is the Saint Louis FED trade-weighted USD index.  It looks like the trade-weighted index has reached its peak and is developing a double top pattern (bearish signal).

Furthermore, the US has accumulated more than US$22T of national debt now.  The US has to resolve this debt conundrum or else its economy will collapse.  How is the US going to solve its debt problem?

Well, the easiest way out is to let inflation deflate the debt pressure.  However, the US CPI is not showing any inflation recently.  Therefore, the US must depreciate its USD to create inflation to reduce the colossal debt pressure.



5 comments:

Eric Ho said...

Why is inflation able to reduce the debt pressure?

Inflation works in the same way as compound interest. It creates asset appreciation and causes wealth accumulation much faster than debt. Therefore, inflation is able to reduce the debt pressure.

Unknown said...

How big is 22t debt compared to the economy?

Eric Ho said...

US economy is about US$19T but the debt figure excludes private sector debt (corporate debt).

http://sg-stock.blogspot.com/2018/11/the-us-corporate-debt-is-us29b-not-us9b.html

Eric Ho said...

https://sg.finance.yahoo.com/video/fed-rightfully-patient-says-ubs-045322695.html

UBS also shares the same view as us on the USD trajectory.

Eric Ho said...

https://sg.finance.yahoo.com/video/expect-us-dollar-weaken-strategist-064312156.html

Daiwa also shares our view on the USD too.