The future of the dollar is not looking so bright.
According to many investors and the so-called bond king Jeffrey Gundlach, CEO of DoubleLine Capital told CNBC: “In the longer term, I think the dollar … [is] doomed.”
Gundlach is known for his firm, which manages more than $140 billion in assets, and for correctly predicting the housing crash in 2007.
And he has many valid reasons supporting his theory.
For one, our nation’s trade deficit has exploded post-pandemic and it’s continuing to grow.
The trade deficit measures the value of a country’s imports vs. their exports. In other words, we are importing more goods than we are selling.
The United States is known as one of the largest exporters of goods globally and the trade deficit went up over 70% from when the pandemic started in February to October of last year alone.
This year, we saw an increase of $353.1 billion in the deficit within the first five months, a 45.8% increase from where we were around this time in 2020.
$71.2 billion were accrued in May alone, a 3.1% increase from April.
The trade deficit numbers last year, while still outrageous, maybe more understandable due to the pandemic. And while some analysts think the trend will revert back to normal in the short term, it’s a different story when it comes to understanding its long-term effects.
However, what is most concerning is that the pandemic isn’t fully over.
Whether you believe it to be a problem or not, the truth is that if it causes another ‘outbreak’, the delta variant could hinder our economic recovery.
If government aid runs out on a national level, it raises a few questions: Will it cause another huge economic setback? Does this mean the government will extend more stimulus and unemployment benefits?
As the dollar continues to weaken, the price of goods (including foreign imported goods) tends to skyrocket.
That means higher costs for you.
New car prices are up 5.3% over the last year, hitting record levels.
The consumer price index, a key inflation measure, jumped 0.9% in June, the most significant one-month increase in 13 years.
At face value, a $1 bill is still $1. But that dollar won’t go as far as one would hope and it’s only continuing to lose its purchasing power.
Jeffrey Gundlach is warning about the rising levels of debt in the US and believes:
“Ultimately; I think gold will go much higher as the dollar falls and commodities broadly have a further significant leg to the rally that began 15 months ago.”
Historically, when inflation rises, the dollar weakens.
Gold surged in the wake of the pandemic and it’s traditionally one asset people go to for safety.