Regarding the series of issues currently existing within the United States, there are mainly two perspectives circulating on the internet.
The first viewpoint is held by many who believe that the U.S. economy is not facing any problems. The rationale behind this belief is that the U.S. has performed quite well over the past few years. Although inflation has been high, hourly wages have increased at a faster rate, and both housing prices and the stock market have seen significant growth. Particularly, the bottom 50% of the population has outperformed the rest.
The second viewpoint is shared by many who think that the U.S. is incapable of addressing the numerous domestic challenges it faces, such as the enormous national debt, which continues to expand rapidly, and at high interest rates, given the limited fiscal revenue. How can the U.S. manage military and welfare expenditures? With a deficit of $1.7 trillion in 2023, what is the total amount and what is the economic growth rate!
After the Federal Reserve initiated the first round of interest rate cuts, inflation has been brought under control, with the PCE approaching 2%, and employment is still acceptable. The rate cuts can prevent the rise in unemployment.
In my personal opinion, although the Federal Reserve's interest rate cuts can protect the U.S. economy in the short term, they cannot completely prevent the outbreak of a dollar crisis.
Let's consider this: the dollar is a tool of U.S. financial hegemony. Americans like to use the international status of the dollar to suppress other countries because the dollar is a globally accepted currency. For most resource-poor countries, they cannot do without dollars.
To illustrate with a simple example, a country that lacks resources such as oil and natural gas must use dollars for international trade transactions to obtain these resources.
If more and more countries engage in transactions using dollars, then the benefits the U.S. earns from this increase. Here, we can view the dollar as playing an intermediary role.Although the US dollar is strong at present, it does not mean that the dollar is safe. As more and more countries begin to de-dollarize, the influence of the dollar in the global financial market in recent years can be described as a visible decline.
Historically, it is quite normal for the dollar to experience a crisis. In October 1960, the price of gold in the London gold market soared to $41.5 per ounce, exceeding the official price by 20%, leading to a significant devaluation of the dollar. For the first time, the dollar, as the reserve currency stipulated by the Bretton Woods system, showed a crisis of trust.
Crisis background: In the Marshall Plan, the United States implemented a "cheap money" policy, with a large influx of dollars into Europe. At the same time, the deterioration of the US international balance of payments created pressure for the devaluation of the dollar, shaking people's confidence in the fixed exchange rate between the dollar and gold.
Seeing this, many friends may have a question: if the United States' technology and military capabilities do not decline, will the dollar's hegemony continue to exist?
This statement is inaccurate. Most people will tell you that the dollar system is used by most countries in the world for international settlement and international bulk trade settlement, especially oil, and all the petrodollar systems.
Petrodollars mean that the dollar needs oil, and oil needs the dollar. If those oil-rich countries in the Middle East do not bind with the dollar, and the United States itself does not have the status of a world factory, the value of the dollar will inevitably decline.
Therefore, what we see is that even if the Federal Reserve has two interest rate cuts this year, it cannot change the fact of the dollar's devaluation. The Federal Reserve has no good cards left to play.