USA faces Economic Turbulence in 2024

The USA has been living in a fantasy world since the World War Two, but that ride is now coming to an end. If you look at the top ten busiest container sea ports, seven of them are in China, and one or two more are in South Korea and in Singapore.

The trade is all happening on the east side of the world. And the western part, if you look at Los Angeles and so on, they really have dropped in trade and they’re not significant anymore.

So, whatever way you slice the cake, the USA is losing its preeminence. And the power has moved to the East.

The dollar suffered a 2.7% decline against other major global currencies in 2023, battered by anticipation among speculators of a shift in Fed policy to cut interest rates and weaken global interest in dollar-denominated investments and debt as the US economy slows.

The drop in the dollar’s value, the biggest of its kind since 2020, when the greenback declined 5.5% as Washington pumped trillions of new dollars into the economy.

This now comes amid the ongoing tectonic transformations in the contours of the global economy as the USA attempts to use its currency as a means of economic pressure against geopolitical rivals.

The West’s economic war against Russia, waged via sanctions and trade restrictions, sparked realization even among many of the USA’s traditional allies that their economic relationships and financial well-being were inextricably linked to American goodwill which could disappear at any moment.

This realization helped motivate half a dozen countries to join the BRICS bloc last year (Egypt, Ethiopia, Iran, Saudi Arabia, the UAE and Argentina), and prompted BRICS+ and other countries to accelerate a search for safe alternatives to the de facto global reserve currency.

The decline of the dollar is a long-term trend and phenomenon and we are only at the early inception phases of this process.

The expansion of BRICS and the multi-currency order and move towards a ‘BRICS currency’ is certainly one core factor as the world trade [and] economic investment patterns are diversifying.

Patel was referring to the currency concept discussed extensively ahead of the BRICS summit in South Africa, and floated again ahead of the upcoming summit in Kazan, Russia later this year.

Whether through another nation’s currency or in the form of a new BRICS monetary unit, the prospective benefits of a stable alternative to the dollar as the hegemon of world trade for Global South countries cannot be overstated, the researcher says.

Still, advocates for dedollarization would need to show value such as cheaper trade costs and less volatility.

Dedollarization would of course mean less space for the USA to use and abuse currencies of nations for political objectives, as has been their standard policy practice for decades.

Patel added, characterizing the process, which he estimates been underway since the global financial crisis of 2009, as one of economic common sense for other countries.

Lessons from when the Gold Standard was ended in the 1970’s is instructive and can provide insights on the pace and velocity of such a process, but the gates of dedollarization have now opened and generally a new global financial-economic and trade diversification is the new norm.

Asked to go into more detail on what’s motivating investors’ expectations of the dollar continuing to lose ground as the Fed considers reversing course on its 21-month-long policy of increasing interest rates to try to tame inflation, the South African economist said stagnation of the US economy and perhaps even a looming recession are driving doubts.

When the Federal Reserve increases the federal funds rate, it typically increases interest rates throughout the economy, which tends to make the dollar stronger, with investors abroad attracted by higher yields, Patel explained.

By contrast, when interest rates fall, interest in dollar-denominated financial instruments diminishes. Increases or decreases in the Fed funds rate have correlated fairly well with moves in the US dollar exchange rate versus other currencies.

Sputnik / ABC Flash Point News 2024.