by Marin Katusa, Katusa Research:

There used to be 3 things you could be certain of: Death, taxes and the US Dollar as the world’s reserve currency.

But is the US Dollar’s recent weakness the beginning of the end?

Many “YouTube experts”, investors that can fog a mirror and self-proclaimed gurus have jumped on this bandwagon.

But like with cannabis and crypto, most of that crowd plays poker with tooth picks, don’t have a pot to piss in and don’t have a real track record for 2 decades.

To start, let’s take a look at how the US Dollar has performed against a trade weighted basket of other major currencies over the past 15 years.

Over the past 15 years, the US Dollar has appreciated roughly 18% versus other major currencies.

During the March meltdown…

• The incredible demand for liquidity and US Dollars was so great – it drove the value of the Dollar against all major currencies into record territory.

As things have slowly normalized, the US Dollar has come back to earth, albeit still up 18% against most currencies over the past 5 years. It is hard to argue that the US Dollar is truly collapsing right now.

The Dollar on the Brink of Disaster?

Do you want to see a chart of a currency collapsing? We have you covered.

Look to virtually any emerging market currency, a handful of which are shown in this chart…

You’re probably thinking… sure, Katusa, you’re just cherry picking.

Ok, here’s the same 10-year chart versus developed nations.

From those charts, it would be hard to argue that the US Dollar is on the brink of disaster.

A core reason for the weakness in virtually every other nation’s currency is that it holds a trade deficit with the United States.

Countries sell more goods to the United States then they purchase from the US. This creates the deficit, which snowballs annually.

It’s widely known that countries like China use their trade surplus to their advantage. They purchase treasuries or US Dollars to boost their reserves which causes the US dollar to appreciate.

This weakens the domestic currency in question and improves the export competitiveness of said nation.

• Ironically, a trade deficit between 2 nations other than the US can still cause the US Dollar to appreciate.

The logic is that the country that runs a trade surplus buys US treasuries with its excess holdings. This will also cause the US deficit to increase even though they are not part of the trade.

It’s the price the US pays for being the world’s reserve currency.

After all,

• 44% of payments over the SWIFT banking network are in US Dollars and 61% of global foreign exchange reserves are in US Dollars.

Can any other “reserve” currency claim that?

Not yet.

What’s Driving the US Dollar Lower Right Now?

In a word, financially transmitted diseases.

We’re in a world heading negative and into uncharted territory.

A key reason for the fall in the US Dollar is the negative real rate of return earned on US government notes and bonds.

• The real rate of return is the bond’s nominal yield minus the inflation rate.

If the nominal rate is less than the inflation rate, then you have a “negative real rate of return”.

For example, right now the US 5-year note yields 0.264%.

Read More @ KatusaResearch.com