The US Dollar is on a downward spiral right now, after the Federal Reserve announced it would start cutting rates to zero in an effort to stave off deflation. Now this will surely send the USD higher. Here is why:
First of all, the Fed can create inflation using this method and we all know that inflation can drive the USD down. Inflation can be measured by the index of consumer prices. When inflation is rising, it makes it harder for consumers to buy goods and services so their purchasing power goes down.
More importantly, people will tend to hoard wealth instead of spend or invest it so that inflation can rise even further. That is how inflation works and since inflation is predicted to stay around 2% for the next couple of years, the time to move your assets into riskier assets, such as gold and foreign currencies, is now. This way you can ride out the recession and ensure that your assets will rise in value.
Second, with the Fed cutting rates to zero and launching QE, it becomes harder for creditors to collect money from the US government. That means they cannot levy interest payments on your loan or credit card debt. So, if your debt is easy to collect, you will be able to pay it off much faster.
Third, when interest rates are cut to zero, it is the same for everyone. The rate is the same for homeowners, renters, car dealers, auto loans, corporate credit card holders, bank debt, mortgage companies, etc. So there is no reason to worry about making different interest payments because all your bills will be at the same interest rate, which in turn means that you will not have to pay higher rates on your credit cards, home mortgage, auto loans, etc. And finally, if the Fed cut rates to zero and launched QE, the federal government will become more accountable. At first, the government might still be in debt but it will be accountable for its actions. It will also put the onus on the Fed to explain why it failed to predict or prevent an economic collapse.
Why is the USD falling after the Fed cuts rates to zero and launches QE? Because there is a shortage of money. When the government cannot borrow money to provide a monetary base for banks, then banks will not lend money out and it will result in deflation.
That is what happened when the Fed cut rates to zero. When the demand for loans declines because there is a shortage of money, banks stop lending money to the government and consumers will stop spending. And once this happens, deflation can result.
Why is the USD falling after the Fed cuts rates to zero and launches QE? Because in a deflationary economy, consumer demand also decreases because there is no more demand for goods and services. If consumers are unable to buy goods and services, then they will not pay off their debt and there will be a rise in unemployment.
When will the USD fall after the Fed cuts rates to zero and launches QE? As long as the Fed continues to cut rates to zero, there will be a drop in the USD. When the Fed stops cutting rates to zero and starts accelerating QE, then the USD will be safe because there will be lots of money and it will boost the economy and inflation will start to go back up.
When you hold gold and you watch the headlines about how the economy is doing and the president is going to cut taxes, stock market prices, oil prices, and housing prices, but his solution is to borrow more money to cut rates to zero, then you need to look at gold. .