Crash in US Dollar Coming: Bloomberg

The Covid-19 pandemic may end the US dollar’s status as primary reserve currency, warns Yale economist Stephen Roach. The pandemic and high unemployment pressure US living standards and spending even as world leaders question US leadership and notions of exceptionalism. Current account deficits since 1982, a recent shortfall in domestic US savings and fast-expanding government budget deficits contribute to the strain. The US Congressional Budget Office anticipates the budget deficit to rise to about 18 percent of GDP in 2020. In confronting the pandemic and economic slowdown, the government dispersed trillions in stimulus funds, and “intense downward pressure is now building on already sharply depressed domestic saving,” Roach explains. The dollar is strong for now as investors seek safety, yet he anticipates the current account deficit to widen to levels the dollar cannot cover. The Trump administration’s protectionist policies, withdrawal from global agreements, mismanagement of the Covid-19 response and protests do not inspire investor confidence. Roach suggests the dollar could weaken by as much as 35 percent – bringing inflation, wider trade deficits along with increased prices for US consumers. Rising tensions in US-China relations may motivate China to step back from lending. – YaleGlobal

Crash in US Dollar Coming: Bloomberg

The world is having serious doubts about the once widely accepted presumption of American exceptionalism and security of the US dollar
Stephen Roach
Tuesday, June 9, 2020

Read the article from Bloomberg about the challenges for the US dollar and its status as primary reserve currency.

Stephen Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of "Unbalanced: The Codependency of America and China."

Read about the current account deficit from Investopedia: “The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.” 

Gross Savings as Percent of GDP, Selected Nations, 2018:  Brazil 12% UK 13% US	19% Canada 	20% France	23% Mexico	24% Japan 	28% Germany	29% Russia	30% India	31% S Korea	35% Norway	36% Ireland	37% Phlippines 	42% China	46%
Ready for next disaster? The gross domestic savings rate per GDP was almost 26.9 percent in 2007, just prior to the 2008 global recession; the Covid-19 response is far more costly (Source: World Bank

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Comments

The writer of this article obviously spent far too much time in 5 Star Hong Kong hotels surveying companies and institutions from the 30,000 foot level under banquet situations as a guest of honor. The dollar is called King Dollar for a reason. The theoretical rationale behind this article is eye-catching, but not reality. The world is in love with the dollar, just look at VZ, Lebanon, Nigeria, or Argentina. The list goes on and on (and keeps going on)! Oil is priced in dollars. Of course putting ones faith in a -$25 trillion debt load is dicey for anyplace, but the US main and hands down best export is definitely the $100 bill. Roach cites China and the EU, these are two very mixed up places. One enforces order with guns and make it up as you go along, the other, a constant world of dithering. A true market economy can underpin neither construct. TINA is correct. Insatiable lemming like world demand for dollars in a Covid ravaged world will anchor its value perpetually. Roach should know better than writing this, but has became starry eyed.

I’ve researched comments by Roach made while he was in China. He’s pro communist and gave positive speech to the tune of CCP. He’s negative towards US economy.

Churchill remarked that democracy is the worse system, except for all others. The dollar is the worst alternative for holding large amounts of wealth, except for all others. The euro suffers from the original sin of having different countries with radically different competitiveness bound to a common currency, held together by quantitative easing and ad hoc measures. China has "invested" trillions of dollars in politically driven projects that will not pay for themselves (let alone their maintenance) and is ill-prepared politically for the strains of a shrinking work force and burdens of trying to assume world leadership/domination without legitimacy. The US under Trump is also losing legitimacy, but could soon be trying a different course. Could the dollar depreciate? Sure, but where do the trillions of dollars, euros, etc. go? Virtual currencies may allow trade with Iran but are not likely to be a major part of pension funds. A rational US president might make the dollar and the US system less obnoxious than it now seems. Between climate change and pandemics/global health, the world has enough to worry about.

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