Many academics and reporters are agreeing that the United States is losing its super power appeal. Certainly, not everyone agrees with this statement, it is obviously because of the continued influence of the United States in global affairs. However, its impact is not as hard as in the nineties. At that time the U.S. was a political and economic super power.
The analysts of the Binary Options Broker Optionova commented on what it means for the United States to lose its status as a super power and how it affects the rest of the world.
The geopolitical implications and the effects on the Dollar.
During the recent events with Syria, it was evidenced that the U.S. was no longer a lone player in foreign affairs. For quite some time America was backed by its allies out of friendship or simply convenience during the problems with Syria. It was at the least an upcoming invasion, if Syria does not comply with the USA ultimatum. But to start with, Americans fell diplomatic through at the United Nations, which, despite all the training undertaken, refused to recognize the arguments of the USA against Syria calling it insufficient.
But the U.S. was not expecting that the situation was going to be resolved peacefully and with the assistance of Russia. However, this has disturbed just the American hawks, while President Obama himself was obviously pleased that the invasion was avoided. No wonder: case studies at that time showed that almost 70% of the U.S. population thinks that the military operations against Iraq and Libya were mistakes, and they don’t want to hear about support for an invasion of Syria.
This time, the U.S. couldn’t impose its will and had to agree to a resolution with the assistance of Russia. This is how outside observers see it. However, not only observers but also some American experts interpreted the incident as a geopolitical failure that dropped the USA from its pedestal, but forced to share this pedestal with others. The most pessimistic USA experts even joined the chorus of foreign enemies, who became prophesy imminent collapse of the American positions and beyond geopolitics, particularly, in the economy. Naturally, the first negative forecasts touched the number one currency in the world, which is the greenback.
Is there truth in a possible prolonged drop for the U.S. Dollar?
Some time ago, economists started predicting a continued loss of interest for the Dollar and a prolonged drop for the greenback. First, we should not forget that the United States has been in a difficult position in terms of production since the nineties. Globalization processes, the transfer of production capacity to "cheap" countries, rising unemployment, violation of economic relationships, all this, of course, could not help affecting the fortress of the dollar.
To stimulate the economy, the U.S. government used war first, because war causes the country to start producing more goods to support the war and also the constant injection of capital into the economy through quantitative easing. Mainly foreign countries, whose economies were tightly “tied” to the dollar, suffered from this but didn’t have access to the printing press.
In 2008 when the financial crisis started, this was when the headaches for the Dollar started too. Despite the fact that the U.S. economy, which has become the main cause of the crisis, benefited from certain benefits, the global crisis of the dollar has a long-term impact. It is a long-term, as a sharp drop in rates has affected many currencies, but not the dollar. But the Dollar felt a severe blow in 2011 and it's the third ground for pessimism about the dollar. In 2011, China and Russia have moved in trade calculations on Yuan, replacing them until the ubiquitous dollar. The mere fact of failure of the number one currency became very real and served a hard blow to the Dollar.
The financial problems in Europe also affect the growth of American companies, because many of these companies have operations in Europe and their profits are affected. Companies are getting cheaper and China is buying them, in parallel with this, the American capital begins to leave the United States, which also does not bring anything good for the Dollar.
The leading expert of the Binary Options Broker Optionova, Michael K. explained that there are some key points to keep in mind about the future of the Dollar.
First, the FED will be meeting on Wednesday and according to the forecasts, we will see a reduction of asset purchases causing a decline on the Dollar.
Second, we have the inflation and unemployment reports on Friday. A number of financial institutions, including the IMF, concern the beginning of the deflation process in the Euro Zone; it will therefore close attention to these data. Latest data on PMI in the euro zone have been better than expected, indicating the steady growth of the economy. If the data is in line with expectations, it will support the euro rate, because at the background of a growing economy, we see a weak inflation, but not weak enough to take the additional incentives.
Third, the U.S. debt ceiling sessions are scheduled for this month, but the fact is that uncertainty imposes additional risks for the Dollar.
What is the expert opinion on the future of the Dollar?
For some experts there are enough reasons for the Dollar to fall and there is the possibility of another crisis created by a devaluation of the Dollar. Many analysts argue that in 2014, the next wave of the crisis will affect Western countries and Asia. Production, consumption and GDP in Japan, India, Singapore, Taiwan, and most importantly, China is shrinking. Slowly, but it is shrinking since 2011. But the Chinese construction market is inflated to the same American levels that provoked the mortgage crisis, as the analysts of Binary Options Broker Optionova explained.
But China has a big economy and may be able to sustain another crisis and its economy may not get too hurt. The scale of Chinese savings and the prospects of the Chinese market are stable even when the production, consumption, and GDP remain significant. At the time, as the U.S. has been steadily declining in all of the economic indicators, it can only maintain itself with the printing press, and unable to do anything to stop the public outcry. China actually may at any time without any loss, go to austerity – as there has never been an affluent society or even a consumer society. In addition, its huge Dollar reserve will be gladly spent to cover all sorts of loans, because the Chinese have no reasons to hold on to a currency that is losing value.
The question is if China will decide to replace the Yuan for the Dollar. Certainly, every year the number of people supporting this idea grows. Economists like to talk about the fact that China can’t make a profit from it; maybe. However, if you make a choice between not very profitable and very profitable, perhaps, the first option would be more popular.
Still, most forecasts about the Dollar remain cautious, because of the uncertainty surrounding the currency. The Federal Reserve has already taught analysts to its unpredictability, what will be happening with the American printing press no one understands. What kind of predictions can we talk about? And here arises the main argument: the dollar ceased to be predictable and therefore a reliable currency.
Currently, the OPEC countries are the ones that depend the most on the Dollar, since Oil is quoted in Dollars. The European Union has the euro, which the U.S. tried desperately to undo all these years and failed. China does not need Dollars, maybe just as a weapon against the United States. The IMF, which supported their dollar credit reputation, loses positions: loans from the representative of American dominion are not needed not only for Ireland, southern European countries, but also for Ukraine.