US Dollar Outlook Hinges on Federal Reserve Interest Rate Decision
The US Dollar Outlook Hinges on Federal Reserve Rate Decision. Inflation may be the Fed’s last ditch effort to keep the inflationary cycle going and may cause a US Dollar Index bubble formation. If and when the bubble bursts, it could send shock waves throughout the global economy and push commodity and energy prices through the roof. However, there are ways for us to protect ourselves and our investments, and the best is through Dollar Intelligent Trading.
Deflation is the unwelcome byproduct of too much debt and too low interest rates. When the two are together, the world economy suffers from too high unemployment, and too low economic activity. When they are separated, we experience too much deflation, or the opposite. When the US Dollar Index is near its lowest and the inflation rate is near the highest in its history (as it was in 2020), that means the US Dollar Index is “inflating.” That means that inflation is building on an already high base.
How do you prevent the US Dollar Index from “inflating” due to the fed’s intervention? You do it by diversifying your investments across different asset classes, including: Commodities, Bonds, Small-Businesses, Financials, Health Care, Home-based Businesses and Energy. When you diversify across asset classes, you increase the diversity of risk and opportunity, and lower your risk-adjusted return (RAS). The result is an investment portfolio with a lower risk-to-income than when you invested all your money in the stock market. Your inflation-proof US Dollar Index dollar portfolio will not inflate beyond your tolerance.
The Federal Reserve and the US Dollar Index are currently very vulnerable to excessive tax liability. The Internal Revenue Service (IRS) imposes several Federal tax levies on individuals and businesses. Among these are the Self-Employment Identification Number (ESIN) tax liability and payroll taxes. The tax liability increases with each new level of employment. The Federal tax holidays, if there are any, generally don’t apply to self-employed individuals. So if you are self-employed, then you are in a pickle.
Are we looking at a future where US corporations have to pay taxes to the government instead of their shareholders or owners? Well, consider the European model where they have a progressive tax system with very low rates for high income groups, and very high rates for middle-income groups. Italy and France have similar taxation systems, with substantial tax havens. It’s a well-known fact that countries with progressive tax systems experience much higher gross domestic product growth per capita than do those with proportional income tax systems. If Europe is any guide, then we are headed for a “Growth Paradox” where governments get more revenue from taxes by promoting economic growth through lower tax liability.
Are we looking at a future where the US government debt is greater than the gross domestic product of the United States? That’s what the European model looks like with their debt problems, but the US does not. The reason is simple; the US government has full faith and credit in its ability to run the federal budget efficiently. In Europe, debt is a much bigger issue due to their recent debt crisis, and relatively high interest rates on debt. As a result, European nations have higher debt relative to their GVA (Gross Domestic Product).
If the US were to adopt a similar system, we would face an even bigger problem because of our differing levels of income and corporate earnings. When corporate profits drop (as they have in recent years), corporate income tax revenue falls. The result is a situation where the government must either raise taxes or lose the ability to stimulate the economy through the use of tax revenue. It is mathematically impossible to revenue increase without reducing income, and increasing corporate taxation will result in higher income taxes for the United States. That will happen regardless of what party is in control of congress.
It is mathematically impossible to run the federal government efficiently if the tax liability is growing faster than the revenue growth. That means that unless the government is more organized than ever before in terms of sharing information and communications with the taxpayer, it will fail to increase its efficiency and run out of money before the next midterm election. It is also likely that whatever additional stimulus package is passed will not raise the amount of taxes needed to pay the national debt. Neither will it resolve the problems of the uninsured or under-insured.