Be mindful everything you wish for.
I'm speaking about the estimated $2 trillion in United states corporate cash sitting in foreign banks - and also the Trump-backed proposal for the special 10% repatriation tax on those profits.
The hope and belief is the fact that a big slice of those funds may come home, giving the GOP-dominated Congress plenty of cash to invest on pet projects much like a giant-sized boost on infrastructure spending. There's no question which the tax will go through in a few form, or that Congress as well as the new Trump administration will discover plenty of ways to use it.
But in terms of what that repatriation will perform towards the Usa dollar, well... check the sentence at the outset of this article.
Let's look at the influence on the Usa dollar the previous time Congress pulled off a major repatriation "tax holiday" way back in 2005. The enabling legislation was called the Usa Homeland Investment Act, a 1-year tax break for big American multinational firms.
At the time, Goldman Sachs estimated the legislation triggered the repatriation of some $300 billion throughout the entire year. And what went down for the dólar
First, an unsustainable surge that lasted the whole 2005 calendar year...
However when the repatriation period ended, and firms stopped converting their foreign-held currencies into dollars, so did the rally - leading the dollar to the inevitable cliff dive throughout the following two years.
We could certainly argue regarding the Federal Reserve's efforts to improve rates (making the dollar more desirable to investors and raising its value in accordance with other currencies) and rein within the surging U.S. real-estate boom and overinflated economy.
Nevertheless the Fed began raising rates in earnest in mid-2004 (from 1% to 1.25%), and didn't stop for just two straight years prior to the fed fund rates hit 5.25% in mid-2006. By then, the dollar was already half a year in a major decline. Plus the major stock exchange indexes wouldn't finally roll over until October 2007.
The thing is the repatriation of even a small amount of corporate America's current $2 billion in offshore cash will have a profound impact, with a tremendous surge in the value of the dollar as companies sell yen, euros and yuan to acquire dollars instead.
A parabolic dollar surge is one thing that we've warned about for quite a while being a prelude to some brutal economic collapse.
Fundamentally, it might be the very last climactic dollar-buying frenzy after nearly two decades of a lot of Fed-induced digital dollars chasing the "same exact, same exact" overpriced stocks, overpriced bonds and overpriced property.
Wouldn't it be ironic (and tragic) in case the very thing that signaled a hoped-for resurgence of the Usa economy (the billions in presumed infrastructure spending) was the actual thing that wrecked it instead?