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Day 28: Brazen Trump Inspires Murky Global Markets

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Yellen spoke to congress this week, and her remarks about the new Commander in Chief could be foreshadowing an upcoming battle between the Fed’s goals and Trump’s plan to weaken the dollar. The President also made amends with China’s President Xi Jinping, but has new problems to deal with as other foreign governments shed their US Treasury holdings.

Battle Between Strong vs. Weak Dollar Policy

  • After Yellen’s speech, rate hike odds are 23% for March 50% for May.
  • Near-term, the value of the dollar seems uncertain.
  • Fed hints at rate hikes only to cover up reality that they can’t.

The dollar is definitely in murky waters starting out in 2017, what with the potential of Trump’s plans to create a border adjustment tax and cause lower overseas earnings. Despite Yellen’s concerns this week, many analysts are predicting a strong medium-term growth overall for the dollar, at least into the second half of this year. Nevertheless, an administration and Fed that fail to see eye-to-eye will only create more confusion and a tug-of-war scenario for the greenback.

Ultimately, the Fed will delay the rate hikes as long as possible. They know as well as anyone that the economy is a ripening bubble. Rate hikes only bring the economy closer to collapse, but necessary for a real recovery. Peter Schiff explained on RT News:

We have to clean house. We have to allow the economy to restructure so we can rebuild it the right way, not based on government central planning. [We have to] let the free market rebuild it based on millions of Americans pursuing their own self-interest. This is what made America great in the first place.

Trump Bends Over Backwards to Chinese President over ‘One China’ Policy

  • After election Trump seemed to side with Taiwan about the One China Policy.
  • Trump has since backtracked on that controversial shrugging-off of the policy after President Jinping refused to speak with him.
  • Such reversals could cause China to doubt his resolve.

Trump’s initial dismissal of the One China Policy was an attempt to gain leverage, a strategy that may have worked had he not publicly discussed his plan.

Trump folded when China’s President Xi Jinping declined to pick up the phone until the President recanted his words. Anyone would most likely do the same when confronted with the potential of damaging ties with one of the largest nations in the world.

As Trump tries to gain better trade deals, road bumps like the one he suffered with President Jinping this week could come back to haunt him.

Declining Treasury Demand could Dampen Trump’s Infrastructure Plans

  • Japan and other nations shed US government debt at 4-year rate.
  • Fewer foreign nations are interested in getting into the US Treasury market.
  • Causes include chaotic political climate, growing deficits, and out of control inflation.
  • Sell off could have major impact on America’s ability to self-finance.

With Trump’s plans to increase infrastructure spending, cut taxes, and put America first, he’s set other nation’s interest in Treasury investment plummeting. Those who are averse to heavy risk have decided to cut back on US investment for the time being, with many citing political uncertainty as a major indicator.

This is a rare instance in which both Trump and the Fed are working together: his unpredictability with policy, combined with the Fed’s desire to increase interest rates are further souring the prospect of owning US Treasuries. The global climate is a volatile and scary place to invest for many nations. Until the dust settles in the coming months, many people are content to invest in safe haven assets like gold and silver.

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