The Weaking Dollars Spells Bad News for Consumers

While the Felon's regime continues to create fear and uncertainty domestically - over the weekend the Felon stated (i) he doesn't believe in due process rights, (ii) he doesn't believe he has to support the U.S. Constitution, and (iii) that he is okay with a recession  - internationally, his changing tariffs and mistreatment of long time allies are turning international trade upside down with American consumers targeted to foot the bill for higher prices.  In addition to uncertainty at home for American consumers,  the chaos and uncertainty surrounding the Felon's economic policies is weakening the U.S. dollar on the international stage.  A weakened dollar means among other things that goods cost more for American consumers, the U.S. government's borrowing costs increase, and foreign investors may decide to invest elsewhere.  Further fueling the uncertainty and economic risks posed by the Felon's tariff policies, the reality is sinking in that both American and foreign economic stability depends on the whims of a malignant narcissist with seemingly not even a rudimentary grasp of economics.  Pieces in Politico and the New York Times look at where American consumers find themselves.  First this from Politico:

President Donald Trump’s threats to upend international trade and disrupt global alliances have triggered doubts about whether the dollar’s dominance will fade.

The consequences of that would be profound.

Dollars and U.S. debt securities are the red blood cells of global markets, and any deterioration of their appeal could shake the foundations of both Wall Street and household finances, economists warn. Borrowing costs and import prices would rise. The value of investment assets that prop up retirement savings accounts would fall. And the government’s ability to run massive deficits to fund everything from Medicare to the defense budget could be diminished.

“Everything would be more expensive than you thought it would be. You’re not making as much as you thought, and the stock market isn’t getting the returns you expected,” said Martha Gimbel, a former Biden administration economist who now leads the Budget Lab at Yale, a policy research center. “Things kind of become shittier.”

As Wall Street heavyweights and top Trump administration officials gather in Beverly Hills this week for the Milken Institute’s annual conference, Trump’s stewardship of U.S. financial markets will be a prevailing theme. Many of the president’s policies are favored by industry leaders — particularly tax cuts and deregulation — but the president’s [the Felon's] singular focus on tariffs has rattled confidence in his ability to preserve the attractiveness of the dollar, Treasury securities and other U.S. assets. Trump has said he’d prefer a weaker dollar but has also aggressively defended its status as the world’s predominant currency.

The dollar’s value against other currencies has fallen by roughly 9 percent since Trump’s inauguration. Demand for U.S. Treasuries — normally a haven for investors in times of strife — retreated after the president shocked markets with his “Liberation Day” tariff announcement.

The column in the Times continues this theme and looks at the potential consequences of a falling dollar.  Here are excerpts:

The U.S. dollar has been a symbol of American power for decades. Of the $7.5 trillion in global currency transactions that take place each day, some 90 percent feature the dollar. The majority of central banks see it as the core of their reserves. Consumers run to it in times of stress. Businesses prefer it for trade invoicing, whether they are based in Milwaukee or Malaysia.

The dollar may not lose its globally dominant role anytime soon. . . . . But it is suffering from a self-inflicted wound and the consequences are just starting to be felt around the world.

A trickle of selling began in mid-January as investors bought euros on the hopes that a new German government would loosen its purse strings. That trickle turned into a “sell America” torrent after President Trump unveiled shockingly large, broad-based tariffs on April 2, and followed that by stepping up his attacks on the Federal Reserve chair, Jerome Powell.

A search for new safe harbors began. In the week ending April 16, gold funds had their biggest inflows since 2007, while selling of U.S. bond funds was the highest recorded since late March 2020. Stock markets churned in ways not seen since either the pandemic or the 2008 financial crisis.

An uneasy stability has returned since the president paused most tariffs and seemed to back down from his threats to fire Mr. Powell. But damage has been done. This year, through April 25, the dollar has lost more than 8 percent in value versus the currencies of its major trading partners.

The way the Trump administration is pursuing its goals is unnerving investors and leaving them less certain about their U.S. assets. They are questioning not only how the trade war will affect global growth but also the strength of American institutions and the country’s reliability as a global partner.

The White House has overturned long-held assumptions on issues such as the future of Ukraine and the sovereignty of Greenland and Canada and just a few years after Mr. Trump touted his U.S.-Mexico-Canada trade deal as “the most modern, up-to-date and balanced trade agreement in the history of our country.”

The April meetings of the International Monetary Fund and the World Bank in Washington were filled with chatter about how America was acting like an emerging market (think Turkey). . . . .

Investment committees around the world, including at pension funds, endowments and central banks, will now decide whether to trim their U.S. investments. As of mid-2024, overseas investors held over $31 trillion in U.S. stocks and bonds. Large institutional investors tend to move slowly, so any shift would likely happen gradually. That said, it would still diminish the dollar’s dominance.

What will this weaker-dollar world feel like? There are some benefits, including how a depreciating currency would help American exports. . . . . It would also make foreign assets more attractive. Let’s say I buy a pied-à-terre in Paris (we can all dream). . . . If the dollar weakens further against the euro, when I sell the apartment and bring my money home, I make a profit not just from any gains in my real estate but also through the exchange rate. A stronger euro means I get a larger number of dollars back.

Sadly, that’s not the end of the story, because a weaker dollar also introduces significant potential costs. It makes imported goods more expensive, most likely increasing prices and undermining household purchasing power. Procter & Gamble, in its latest quarterly earnings release, said it planned to raise prices on some of its products even though consumer demand has slowed. Imports, including raw materials, packaging and some finished goods, account for roughly 10 percent of all the P&G goods sold in the United States.

[O]n the horizon is slower growth and potentially faster inflation. . . . The rest of the world is caught in the crossfire. Take Japan. Two weeks after Mr. Trump’s tariffs were announced, private Japanese investors sold more than $20 billion worth of foreign bonds. During the first week, U.S. Treasury bond yields surged, suggesting that American debt was among the assets the Japanese were selling.

This dynamic is playing out across America’s largest trading partners. Even if the weaker dollar helps American exports, global demand for its goods is softening.

History tells us that a softer dollar isn’t a panacea, and that it’s also important to understand why the currency is falling. The policy path being pursued today may result in some improved bilateral business opportunities. But those gains will be offset by damage, which will flow through to consumers and businesses, potentially for years to come, in the form of relatively higher prices and interest rates.

If America wants to help manufacturing and export workers, and also have a weak dollar, it should think hard about what policies can lift America and the rest of the world together. Let’s hope Treasury Secretary Scott Bessent will encourage his White House colleagues to act more in line with his recent remark in Washington when he said, “America First does not mean America alone.”

 The thing to remember is that this harm is self-inflicted and caused by one individual - the Felon - who seemingly cares nothing about the harm done to everyday Americans and small businesses.