Key Economic Indicators Show That the Dollar Is Falling

Key Economic Indicators Show That the Dollar Is Falling

Anxious investors and experts are watching for signs that the US dollar will fall since it is under a lot of stress. Pay attention to key signs to get a better sense of the problem. By keeping an eye on this kind of information, you may be able to better understand the situation with the dollar and make smart financial decisions in a volatile market. 

When evaluating the value of the dollar, the deficits in the federal budget are an important economic indicator. The government's spending-to-revenue gap may have an impact on the value of the dollar as well as your future financial possibilities. Biden's leadership had the third-biggest financial deficiency in history, at $1.83 trillion in fiscal year 2024. By the year 2034, it is expected that the situation will become much more dire, with annual deficits reaching almost three trillion dollars. You may make an educated guess about the future of the dollar by looking at annual deficit reports and long-term predictions.

The national debt is a big risk to the value of the dollar. This huge amount of debt went over $36 trillion in November 2021. Just about 123 percent of the country's gross domestic product is represented by it. The main way to tell how healthy a country's finances are is to look at its debt-to-GDP ratio. The United States may have trouble meeting its financial responsibilities as this number keeps going up, which worries creditors and investors. As for how long the budget will work, there are some doubts.

Both the debt and the interest burden of the government continue to increase. It has become very expensive to pay the interest on the federal debt, which has created a vicious cycle. The decisions that the Federal Reserve makes about interest rates affect the interest burden of the national debt. Interest payments on federal debt went over $1 Trillion in 2024. Compared to fiscal 2023, interest payments went up by 28.6%. The cost of interest to the United States was greater than the cost of the military ($882 billion) or Medicare ($874 billion). With a total expenditure of $1.46 trillion, Social Security was the only expenditure that exceeded the interest on the debt. 

Following the financial crisis of 2008, the Federal Reserve maintained zero interest rates for over ten years until lowering them once again during the pandemic, therefore rendering the economy dependent on free money.  As a result of the increase in prices, the Federal Reserve is required to promptly raise interest rates. Costs of borrowing money in the financial sector are impacted by the benchmark interest rate set by the Federal Reserve. Lower rates may cause inflation to increase, while higher rates may cool an economy that is overheated and hinder development. Increases in interest rates are beyond the capabilities of this debt-ridden bubble economy. 

One of the most important factors that determines the value of the dollar is the total quantity of money that is flowing in the economy. Inflating the money supply is the sole method by which the Federal Reserve may exert influence over the interest rates charged by the government. Although the money supply went down during the fight against inflation, it has still grown by 37 percent since 2020. As the amount of money in circulation rises, prices may rise and the currency's value may fall. 

There is a correlation between inflation, as measured by the Consumer Price Index, and the purchasing power of the dollar ($). When the Consumer Price Index (CPI) goes up, it means that the dollar is getting weaker. Observe the monthly CPI reports for any changes in the strength of the dollar.

Gold turned out to be the best commodity to use as a possible inflation hedge. Gold is purchased by investors since the value of the money declines, hence influencing its price. The gold price is already at historical highs; now that the Fed is easing its fiscal policy, debasement of the currency could increase it more. 

Track financial factors including gold prices to assess the value of the dollar.