Martin D. Weiss: While the stock market has been rising, the U.S. dollar has been sinking.
It’s on the verge of breaking major 13-month lows.
It’s not far from reversing everything it gained against a sinking euro during the recent European debt crisis.
And once those barriers are breached, it could crash to its lowest level in history.
But Washington doesn’t care, and few investors seem to give a damn.
They celebrate the fact that, in the near term, a falling dollar helps make U.S. exports more competitive overseas.
Plus, they like the fact that a dollar decline temporarily drives global investors away from safety and into risky investments, including U.S. stocks.
What they don’t seem to realize is that the precipitous fall of the U.S. currency can set off a chain reaction of consequences that can spiral beyond the control of any government …
Consequence #1. Surging interest rates: As the U.S. dollar falls, U.S. borrowers must pay more interest to foreign lenders in order to offset their risk of holding a falling currency.
U.S. consumers must pay more dollars for imports — especially oil and automobiles, driving up inflation (and interest rates).
And when the dollar collapse gains momentum, the Fed may have no choice but to jack up U.S. interest rates to persuade foreign investors to stop dumping the greenback.
Result: Higher interest rates overall.
Consequence #2. A half trillion dollars more in interest costs: Americans are buried in a mountain of interest-bearing debts.
In fact, according to the latest Fed data, U.S. individuals, corporations and governments have now accumulated debts of $57.6 trillion.
With just one percentage point rise in their interest rate costs, they’d suddenly have to pay $576 billion — more than a half trillion dollars — more than they pay now.
Consequence #3. A big hit to large U.S. banks: According to the Office of the Comptroller of the Currency (OCC), U.S. banks currently hold $233.9 trillion in high-risk bets called derivatives, with the overwhelming bulk of those (81%) tied to interest rates.(...)Click here to continue reading the original ETFDailyNews.com article: The Long-Term Consequences Of A Sinking U.S. DollarYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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