On September 18, the Federal Reserve surprised the markets by cutting interest rates by 50 basis points, hinting at a gradual decrease in rates. However, recent non-farm payroll reports from the U.S. have raised concerns that could lead the Fed to consider a more aggressive rate cut approach. The key point of debate is the October non-farm employment figures, which showed a dismal addition of only 12,000 jobs, significantly underperforming against expectations of 113,000. Although the Fed attributed this shortfall to factors such as hurricanes and a strike at Boeing, many analysts argue that these explanations fail to paint a complete picture of the U.S. economic landscape.

After all, if the Fed claims that the economy is robust, how can they reconcile this with such poor job growth? The situation is puzzling, especially when one considers that the national unemployment rate has remained stable at 4.1%. Economic observers are skeptical about the authenticity of the unemployment statistics, given that historical data suggests that an increase in unemployment typically results from significant slowdowns in job creation. The consistency of unemployment figures during these challenging times raises red flags and questions about possible manipulation in the data by the Federal Reserve to attract international investments.

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What’s undeniable, however, is that the recent job numbers reflect a troubling trend. Despite the optimistic narrative from the Fed, a closer look reveals that the American economy is not as robust as portrayed. The rate cut on September 18 was a signal indicating the pressure the U.S. economy faces, with scholars and analysts suggesting it was a bid to stabilize an economy beset with challenges.

The Fed had signaled a slow and cautious approach to further rate cuts, primarily basing their optimism on the preceding month’s favorable job growth numbers which saw an increase of 254,000 new jobs against an expected 150,000. Yet, even in light of these figures, it’s clear that the economy's foundations are shaky. The upcoming Fed announcement on November 7 regarding future monetary policy could further reflect these underlying concerns as the Fed might have to reconsider its stance due to the discouraging economic indicators we are currently witnessing.

The U.S. dollar stands as the world's most widely used currency, a status largely bolstered by America’s substantial gold reserves, which amount to 8,133 tons, roughly accounting for 20% of the global supply. However, as the years progress, these gold reserves have seen little to no substantial growth. At the same time, the volume of the dollar in circulation has surged amid various geopolitical conflicts, leading to concerns that this inflation may significantly decrease the currency's inherent value.

The persistence in the rising gold prices hints at a growing distrust in the U.S. dollar, prompting nations and financial institutions to invest in gold as a more stable asset. In a world rife with geopolitical tensions and economic unpredictability, gold appears to be regaining its status as the go-to form of value for many. This shift reflects a broader trend wherein countries are increasingly opting for alternatives to the dollar in international trade.

 

Historically, we remember that under President Nixon, the dollar decoupled from gold but later tied itself to oil, resulting in the phenomenon known as "petrodollars." The dollar being the standard against global oil transactions resulted in a dependency that bolstered its status in international markets. However, even key players like Saudi Arabia, which initially played a pivotal role in this dynamic, are increasingly open to settling trade in currencies other than the dollar.

Moreover, the share of oil in global energy consumption has gradually decreased over the last few years, indicating a growing reliance on renewable energy sources. The decreasing consumption of oil—down from 33.06% in 2019 to 31.7% in 2023—illustrates a significant shift towards alternatives like wind and solar energy. This transition is inadvertently contributing to lower oil prices globally and diminishing the dollar's perceived value.

A growing number of countries are opting out of using the dollar for oil transactions altogether. For example, Iran has pivoted toward currencies like the euro and the yuan for its oil trade, while Saudi Arabia has engaged with China on oil transactions that do not involve the dollar. Additionally, amid ongoing sanctions, Russia is similarly charting a path toward dollar de-dollarization in its oil dealings.

The signs are increasingly evident: both the domestic economic malaise and the diminishing confidence in the dollar on the international stage are rapidly contributing to a decline in American economic hegemony. Strikingly, this may offer a silver lining for nations such as China, who could benefit from this shift.

 

Will opportunities arise from this decline?

The lackluster non-farm employment data from October may provide the Fed with justifiable cause to consider further rate reductions. For many investors, this is viewed as a favorable development that stands to facilitate increased capital inflow into markets like China. Such financial movement can catalyze technological innovation and industrial upgrades, paving the way for significant changes in market liquidity.

 

Likewise, a certain revival in global financial markets may mitigate pressures faced by Chinese export and import businesses. The decline in dollar usage within the tapes of global oil trade, alongside the emergence of alternatives like the BRICS payment system, indicates a collective effort among countries to lessen their dependency on the U.S. dollar and cultivate financial autonomy.

 

This shift can potentially set the stage for a new global economic framework, fostering a trade environment characterized by safety, stability, and fairness for the majority of nations involved.

Clear indications show that the present landscape is ripe for change, bearing both risks and challenges. It is imperative to navigate through these global trends and capitalize on the prevailing sentiments toward financial diversification.