Hey all, I've been meaning to make this post for a while however, I've been quite busy with school.
If anyone follows econometrics, you will know the USD is projected to depreciate by approx. 20% by the end of 2021, let's discuss the implications of this and why I am now (more than ever) bullish on both the US economy and the stock market. Let's take it way back to high school economics (One of the only Keynesian concerts I do agree with)
As currency depreciates...:
- domestic goods become more attractive in an international market because they're cheaper in relative terms (exports increase)
- inflation rate increase
- demand for the dollar increases
- greater FDI inflows --> decrease in budgetary deficit --> decrease in international debt (if Biden is smart)
------- Overall, depreciation stimulates economic growth
Now, there are *definitely* caveats to this, it's not all unicorns and rainbows, the most notable is the price of imports will rise. Given America's dependence on imports (from let's say China, Japan, & Germany) the price of goods will increase in both relative and absolute terms; so yes inflation :0.....
Why am I bullish on this??!!??!!
Well, coming out of a recession, from an economic standpoint America is still in one (IMO), currency depreciation is the most powerful tool the Fed can use at this time period. I believe with a devalued currency the US can simultaneously do the following:
- Decrease the BoP
- Slowly (emphasis on slowly) increase interest rates which will....
-> Attract more more FDI which will...
-> Help companies grow which will.... support your "OvErVaLuEd" stock market
- Increase minimum wages (this is wishful thinking)
Overall: Economic growth + growth of real asset value = robust American recovery lasting 10+ years
Note: I believe interest rates don't need to be raised, the return% from real & financial assets is enough to attract foreign investment (P.S it already has been)
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Don't forget to like this post and follow me if you agree, means a lot!
**********
If anyone follows econometrics, you will know the USD is projected to depreciate by approx. 20% by the end of 2021, let's discuss the implications of this and why I am now (more than ever) bullish on both the US economy and the stock market. Let's take it way back to high school economics (One of the only Keynesian concerts I do agree with)
As currency depreciates...:
- domestic goods become more attractive in an international market because they're cheaper in relative terms (exports increase)
- inflation rate increase
- demand for the dollar increases
- greater FDI inflows --> decrease in budgetary deficit --> decrease in international debt (if Biden is smart)
------- Overall, depreciation stimulates economic growth
Now, there are *definitely* caveats to this, it's not all unicorns and rainbows, the most notable is the price of imports will rise. Given America's dependence on imports (from let's say China, Japan, & Germany) the price of goods will increase in both relative and absolute terms; so yes inflation :0.....
Why am I bullish on this??!!??!!
Well, coming out of a recession, from an economic standpoint America is still in one (IMO), currency depreciation is the most powerful tool the Fed can use at this time period. I believe with a devalued currency the US can simultaneously do the following:
- Decrease the BoP
- Slowly (emphasis on slowly) increase interest rates which will....
-> Attract more more FDI which will...
-> Help companies grow which will.... support your "OvErVaLuEd" stock market
- Increase minimum wages (this is wishful thinking)
Overall: Economic growth + growth of real asset value = robust American recovery lasting 10+ years
Note: I believe interest rates don't need to be raised, the return% from real & financial assets is enough to attract foreign investment (P.S it already has been)
**********
Don't forget to like this post and follow me if you agree, means a lot!
**********