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Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is announcing its top reasons why, after 30 years, U.S. interest rates have bottomed and will start to rise.“The U.S. dollar is still regarded as the global reserve currency, with the majority of international transactions being settled in U.S. dollars. Most central banks also hold the U.S. dollar in their foreign exchange reserves,” says economist and lead contributor Michael Lombardi. “But since the Credit Crisis in 2008 and the multi-trillion-dollar printing program by the Federal Reserve, the supremacy of the U.S. dollar as the ‘world’s currency’ is being challenged.”
Lombardi explains that the BRICS countries (Brazil, Russia, India, China, and South Africa) have agreed to start a new development bank that will compete with the International Monetary Fund (IMF) and the World Bank. Both the IMF and World Bank are U.S. dollar-based. (Source: Hill, P., “Emerging economic powers to challenge U.S., IMF with own aid bank,” The Washington Times, August 5, 2014; www.washingtontimes.com/news/2014/aug/5/emerging-economic-powers-to-challenge-us-imf-with-/.)
According to Lombardi, this parting of ways with the U.S. dollar as the reserve currency has been in play for the last 14 years. Since 2000, the U.S. had dollar composed about 56% of all reserves at central banks. But after the Credit Crisis, this percentage started to decline, and in 2013, the greenback made up only 32.43% of all foreign exchange reserves at foreign central banks. (Source: “Currency Composition of Official Foreign Exchange Reserves (COFER),” International Monetary Fund web site; www.imf.org/external/np/sta/cofer/eng/, last accessed August 21, 2014.)
“The $3.5 trillion in new money the Federal Reserve has created out of thin air has made other central banks nervous about holding U.S. dollars in their vaults. After all, if you were a foreign central bank with U.S. dollars as your reserve currency, how good would you feel to know the U.S. just printed more dollars as it needed them without any backing of gold?” Lombardi adds. “But it’s not just the money printing; it’s the massive debt the U.S. government has accumulated, currently at $17.6 trillion and closing in on $20.0 trillion.”
In the short-run, Lombardi explains the U.S. dollar is still considered a safe haven during times of geopolitical situations. But in the long term, with the continued growth of China as a world economic power, backed by its BRICS partners, the future of the U.S. dollar as the world reserve currency comes into question.
“Secondly, after almost 30 years of declining interest rates, I’m convinced interest rates have bottomed out and will need to start rising. And inflation will become a problem; this will push interest rates higher,” he concludes. “As the BRICS’ efforts intensify and investors stop turning to the U.S. dollar as the reserve currency in times of uncertainty, the U.S. will need to step in and actually make owning U.S. dollars more attractive. And any currency that has a higher interest rate attached to it is more attractive.”
For more information on Profit Confidential, visit www.ProfitConfidential.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.
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