Have you ever wondered: In a country with debt higher than GDP, a declining labor participation rate, and an out-of-control fiscal deficit, why is its currency still the strongest in the world? Is the dollar really 'invincible'? Or is the global financial system 'dependent on it'?



In recent years, the US economy appears to be flourishing on the surface, but deep-seated structural problems are becoming increasingly evident:


  • Government debt has exceeded 130% of GDP, reaching a historical high, which means the money the US owes is more than what it earns in a year.


  • Both fiscal and trade deficits are out of control, with spending far exceeding income, and the money is 'borrowed'.


  • Labor market data is seriously distorted: although the official unemployment rate is only 3.5%, if we include those 'lying flat' and not looking for work, the real unemployment rate could be close to 10%, reaching the edge of economic recession.



In theory, such an economy should face currency depreciation and capital flight, but the reality is - the US dollar continues to strengthen, and it is strengthening against the trend.


Why?



I. The 'Illusion' of a Strong Dollar: Originating from Structural Gaps


We need to broaden our perspective beyond the US domestically and see the 'underlying logic' of global finance.


What truly supports the strength of the dollar is not how 'good' the US economy is, but rather the structural characteristics of the international financial system, especially the existence of the 'Eurodollar' system.


In simple terms:

The dollar is not a currency that the US 'controls' itself, but rather the cornerstone of global financial settlement. Global banks settle through the dollar, which means that regardless of how the US economy performs, as long as there is global demand for the dollar, its value will be 'pushed up'.


Currently, global dollar liquidity is very tight. Although the Federal Reserve has 'printed' a lot of money, with its balance sheet rising from $800 billion in 2008 to $7.5 trillion today, most of this base currency (M0) remains within the financial system, deposited back with the Federal Reserve by commercial banks as 'excess reserves', and has not flowed into the real economy at all.


On the contrary, the money supply that can truly drive the economy (M1, M2) mainly relies on commercial banks to **'create out of thin air'** - that is, lending. The problem is, in an unstable economic environment with tightening regulations, banks are becoming increasingly 'stingy with loans', leading to monetary expansion falling far short of expectations.


Even more exaggerated is that there are as much as one quadrillion dollars in derivatives within the global banking system, and these highly leveraged financial products are still supported by merely 7 trillion in M0 and 24 trillion in M1, resulting in a huge funding gap and the dollar being in short supply.



II. Closed Loop System: Funds Always Return to Banks


There is a classic theory that can explain the current phenomenon. In the 20th century, banker Walter Wriston pointed out that the monetary system is a 'closed loop': money is withdrawn from banks to buy gold, and the gold seller then deposits the money back into the bank - the money does not 'disappear', it just changes hands. This closed loop creates a structural demand; as long as global finance operates based on the dollar, this strength will be maintained.



III. The Cost of a Strong Dollar: Future Inflation and Trust Crisis


Although the dollar seems 'indestructible' in the short term, the hidden dangers behind it are equally significant. High debt and low growth are a form of overdraft on long-term trust.


The US indeed has the 'power to print money', which can dilute debt through inflation, but this is also destroying the purchasing power of the dollar. Once market confidence in the Federal Reserve collapses and inflation spirals out of control, it will greatly impact the dollar's international credit.


Currently, Mlion.ai's AI coin price prediction tool has revealed a signal: In an environment of high interest rates and high inflation, although the dollar index is rising, the digital asset market has already released subtle signs of 'liquidity returning'. We can also monitor the trends and nodes of cross-border capital flow in real time through Mlion's on-chain address analysis function, grasping the anomalies 'behind' the dollar's strength.



IV. Conclusion: The Strength of the Dollar is Not the Strength of the US


We should not be misled by the appearance of the dollar; its strength derives more from structural shortages and a global dependency on the currency system, rather than the true competitiveness of the US economy itself.


The key indicators to observe in the future are:


  • The Sustainability of US Fiscal Policy


  • Inflation Control Ability


  • The Real Recovery Situation of the Labor Market


  • Whether the Federal Reserve will continue to raise interest rates and tighten liquidity


And these variables can all be identified in advance using platforms like Mlion.ai, leveraging AI-driven data interpretation and research models to spot turning points earlier. Especially when you want to gain insights into the 'on-chain capital movements' and 'institutional sentiment fluctuations' behind the changes in the dollar's trend, Mlion's deep interpretation of news and AI research report functions provide an excellent entry point.



Disclaimer: The above content is for informational sharing only and does not constitute any investment advice!