FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
April 25, 2023

IN THIS ISSUE:

1. US Dollar To Lose World Reserve Currency Status?

2. US Became World’s Largest Economy in the 1880s

3. Why US Dollar Should Be World’s Reserve Currency

4. Americans Have Fewer Close Friends Than Ever Before

Overview: US Dollar To Lose World Reserve Currency Status?

Over the last couple of years, there has been increasing talk of the US dollar losing its status as the world’s “reserve currency.” The truth is, this is nothing new. For as long as I can remember, there has been speculation that the US dollar could lose its status as the world’s reserve currency.

The fact is, the US dollar has strengthened as the world’s reserve currency over the last decade, and arguments that it will lose its reserve currency status in the next few years are simply unfounded.

Those who warn the US dollar could lose it status as the world’s reserve currency soon do not know what they are talking about.

The US remains the world’s largest economy by a wide margin, and the US dollar should retain its status as the world’s reserve currency for the foreseeable future. No country is near a position of overtaking the US as the world’s largest economy anytime soon, much less the US dollar’s designation as the world’s reserve currency.

US Became World’s Largest Economy in the 1880s

Most historians and economists agree the US became the world’s largest economy in the 1880s, as measured by Gross Domestic Product. According to most accounts, 1886 was the year when the US became the country with the largest aggregate economic output (GDP). The US has been the world’s largest economy ever since then.

US Gross Domestic Product rose to a record $25.5 trillion in 2022, an increase of 2.1% over 2021. Currently, the largest slices of the global economic pie are held by the United States, China, Japan, Germany and India – in that order – which together account for more than half of global GDP. China’s GDP is estimated at $19.4 trillion in 2022.

China’s economy is growing faster than the US and is expected to overtake the US in the years ahead, but most forecasters don’t expect this to happen until at least 2035. So, the US is expected to remain the world’s largest economy for at least another decade and very likely even longer. Ditto for the US dollar as the world’s reserve currency.

So, when you read forecasts that the US economy will lose its dominance as the world’s strongest, and the US dollar will lose its status as the reserve currency, take them with a grain of salt. Neither should happen anytime soon.

Why the US Dollar Should Be World’s Reserve Currency

The US dollar in its current form has been in use since 1792. The dollar has continued to grow in use globally since it was introduced. The United States dollar was established as the world's foremost “reserve currency” by the Bretton Woods Agreement of 1944.

A reserve currency is a foreign currency that is held in significant quantities by central banks and other monetary authorities as part of their foreign exchange reserves. The reserve currency can be used in international transactions, international investments and all aspects of the global economy.

The US economy is the largest in the world by a large margin, as noted above, and it is entirely appropriate the US dollar should be designated as the world’s reserve currency. Predictions the US will lose its status as the largest economy, and the US dollar will lose its position as the world’s reserve currency anytime soon are unfounded and should be ignored.

On a different note, history has proven it’s better to be on the “long side” than the “short side” in the markets. While there will be recessions and bear markets from time to time, it’s impossible for most investors to predict when these periods are going to occur – and even harder to make money off of them.

Sure, there are some professional money managers who have been successful at playing the market both ways. But keep in mind such managers are very hard to find, and in some cases, their strategies end up not working  over time.

Successful investing is hard enough as it is. Trying to time the market is impossible for most people. This is why I recommend you use professional money managers with time-tested strategies and diversify with several in your portfolio, as well having allocations to multiple asset classes.

Don’t Listen To The Gloom-And-Doomers

As with most things in life, there are two sides to every argument. This is certainly true for arguments about the US economy and the dollar. It is important to understand there are always voices which argue the US economy is headed into a downward tailspin, no matter how strong it is. Ditto for the US dollar which, as pointed out above, has appreciated in value over the last decade.

I call these people “gloom-and-doomers.” Some sincerely believe in their positions, while others insist on maintaining their negative views no matter how positive the latest data is. Some refer to the latter group as “perma-bears.”

Many of these people have been wrong for decades. So why are they still around? There are people who want to believe bad news and largely ignore the good. You know people like this – we all do. But the last thing you want to do is allow these people to influence your investment decisions.

While it is true it is appropriate to take defensive positions in your investment portfolio from time to time, the fact is markets go up a lot more of the time than they go down in most cases. So, being a gloom-and-doomer or a perma-bear is a losing position most of the time. Hopefully, you are not one of them.

Americans Have Fewer Close Friends Than Ever Before

I’ll close out today’s letter with an interesting but troubling topic I ran across recently. With the US population numbering at least 336 million, you’d think we wouldn’t suffer from a lack of people we’re close to in our lives. Nonetheless, a recent survey found that the majority of Americans have fewer friends than they did three decades ago, if not ever.

“Signs suggest that the role of friends in American social life is experiencing a pronounced decline,” according to a study published last year by the Survey Center on American Life. Study authors revealed that “Americans report having fewer close friendships than they once did, talking to their friends less often and relying less on their friends for personal support.” 

The troubling findings were based on interviews with 2,019 Americans, aged 18 and up, from all 50 states as well as Washington, DC.

Per the surprising study, nearly half of all Americans – 49% – reported having fewer than three close friends. This marks a nearly twofold increase from 1990, when less than one-third (27%) of Americans had three or fewer close friends.

During that year, 33% reported having 10 or more close friends, compared to just 13% today.

If that wasn’t bad enough, a mind-boggling 12% of interviewees claimed to have zero friends today, four times as many as 30 years ago, per the survey.

Naturally, the COVID-19 lockdown is partially to blame for today’s loneliness epidemic. According to the survey, “nearly half (47%) of Americans report having lost touch with at least a few friends” over the past couple of years.

Women were most affected by the Covid quarantines with almost 59% claiming that they’d fallen out of contact with at least a couple of buddies during that time. Men also reported having fewer friends these days.

However, the Covid pandemic isn’t the only reason more Americans are stuck in the “no-friend zone.” Other factors include the fact that Americans are marrying later than before and travel more, two trends that are linked to self-isolation, per the study.

Modern Americans are also spending twice as much time with their kids than previous generations did, which has relegated other relationships to the sidelines. Throw in the fact that free time is increasingly consumed by work for many Americans, and it’s no wonder that we’re experiencing a good friend deficiency.

The quality of companionships is also on the decline as young Americans, especially males, are increasingly turning to family over friends in times of need. Per the findings, a whopping “36% of young men” reach out to their parents first when dealing with a personal problem, compared to just 17% in 1990.

I don’t know if this is a bad thing, but it’s clearly different from in the past.

Elsewhere, our increasingly digitized society is certainly partly to blame for the friendlessness plague, as studies have shown that social media use can cause feelings of isolation. I think we would all agree we’re spending more time on the Internet than ever before, especially young people.

For all these reasons, Americans report having fewer close friends than in years past. I hadn’t noticed this trend, and that’s why I wanted to bring it to your attention.

I hope this trend reverses itself in the years just ahead, but I am not optimistic.

Very best regards,

Gary D. Halbert

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