The US dollar has declined about four percent year-to-date. What’s its outlook? Could the greenback recover the losses and continue to move higher, or is it only headed down from here?
Recently, I had a chance to talk to Michael Lombardi, founder of investment research firm Lombardi Publishing Corporation and the popular financial web site Profit Confidential.
Michael Lombardi believes that a US dollar collapse is a real possibility and that the rise we have seen in the U.S. dollar over the past few years is nothing but a dead-cat bounce.
Below is an excerpt from the conversation with Michael Lombardi. It has been lightly edited for clarity and a chart has been added to make the concept clear.
Moe Zulfiqar: Why do you believe the US dollar could collapse when it’s the darling of investors and institutions around the world? People trust in it and whenever something happens, it’s considered a safe-haven currency.
Michael Lombardi: I am a true believer in fundamentals. When looking at the data, the future of the dollar seems very bleak.
In basic economics you are taught that when there’s a lot of something, its value declines. Let me tell you this—and sadly no one is talking about it—there are a lot of US dollars out there, and the amount is increasing every day. For instance, look at the monetary base [a measure of money supply]. It has increased over 350% since the financial crisis.
(Source: Federal Reserve Bank of St. Louis, last accessed August 16, 2016.)
To give you an idea of how fast this growth rate is, consider this: prior to the financial crisis, the monetary base increased by 351% in roughly three decades.
Moe Zulfiqar: So, is too much money the only reason the US dollar could collapse, or are there more?
Michael Lombardi: The list of reasons why the US dollar could collapse is getting bigger daily. Some factors I am closely following include;
With all this said, I also want to add that I don’t expect the US dollar to collapse instantly. It’s going to take a long-time.
Courtesy: Moe Zulfiqar
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