/View.info/ No one doubts the fact that the US dollar will lose the status of a world currency, which it received almost eight decades ago at the international conference in Bretton Woods (1944). Differences in expert estimates relate only to the timing of the expected event.
Someone believes that the descent of the dollar from the orbit of the world currency will not be instantaneous, it will happen gradually. For example, the British pound sterling gradually lost its position as a world currency (this happened for several decades in the first half of the 20th century).
Proponents of this point of view simply extrapolate the trends of the last two or three decades. For example, according to the International Monetary Fund, the share of the US dollar in the international reserves of all countries of the world at the end of 2001 was 66.9%, and by the end of 2022 it has fallen to 58.4%.
Using a simple method of extrapolation, it can be calculated that in fifteen years the share of the US dollar will fall below the 50% mark. And there, look, the positions of the Chinese yuan will strengthen, the American dollar will lose its monopoly positions. The era of the coexistence of the two leading currencies will begin (similar to the situation between the First and Second World Wars when there were two currency leaders – the British pound sterling and the US dollar.)
However, some experts argue that the extrapolation should not be “simple”, but “complex”, taking into account the effect of such a “catalyst” as Washington’s anti-Russian sanctions. Although they are anti-Russian, they provide for secondary sanctions against those countries that avoid participating in the anti-Russian sanctions. In this way, Washington actually incentivizes many countries around the world to replace the US dollar with other currencies, mostly national ones, to protect themselves from possible sanctions from Washington.
Given the action of this “catalyst”, the collapse of the dollar may occur in 5-10 years. I don’t know what methodology the oligarch Oleg Deripaska used, but the other day he said that within five years the dollar will cease to be a world currency.
Well-known British monetary historian Neil Ferguson, who regularly speaks on Bloomberg, repeats his key thesis in different versions: “If money has problems, they will be slow and gradual.” This idea is in the title of one of his recent posts: “The decline of the dollar may occur gradually, but not suddenly. Rumors of the death of the US currency are as exaggerated as they are repeated.”
However, most experts paint a different picture of the future of the US dollar. According to their forecasts, the American currency will not “roll” gradually, but will “collapse” sharply and, accordingly, unexpectedly for many. Here is one of the recent posts with this point of view. This is an article titled “What Strong Gold Says About the Weak Dollar” in the British Financial Times.
There are many similar articles in the British and American media. But the publication in question belongs to Ruchira Sharma, head of the Rockefeller family fund Rockefeller Capital Management. And the prosperity of the Rockefeller clan, as you know, is largely based on the US dollar. So I am sure that the collapse of the dollar is not far off and that it will be sudden and very sharp.
Naturally, no one can name the exact date of the event (I do not take into account some newly minted Nostradamus who turn out to be charlatans). There are a lot of apocalyptic scenarios here.
For example, a scenario according to which the collapse of the dollar will suit China. To date, it has accumulated gold and foreign exchange reserves totaling $3.4 trillion. Beijing does not disclose the currency composition of the reserves, but they are known to contain US Treasuries. At the end of January last year, the portfolio of such securities of the Central Bank of China was $1,033.8 billion. And at the end of January this year, it was $859.4 billion. That is, its amount in the treasury decreased by $174.4 billion, or 16 .9%.
China’s central bank is weaning off the US currency cautiously as China’s economy remains heavily dependent on the US. But no one excludes that in the event of a sharp escalation of relations between the US and China (say, on the occasion of Taiwan), Beijing may take drastic action. Including as a massive dump on the US Treasury market. And this could become the reason for the collapse of the US dollar.
The collapse of the US dollar can also be triggered by events in America. Such as the civil war or even the breakup of the United States of America. Enough has been said and written about these scenarios and I won’t dwell on them.
However, I will dwell on a version that is sometimes called a conspiracy theory. That’s the problem with the so-called debt ceiling. The US national debt in January of this year reached the ceiling of $31.4 trillion and there was nothing to close the hole in the gigantic budget deficit. The Ministry of Finance has “subcutaneous”, but they will end by July-August this year. And without getting the right to new loans, America will face sovereign bankruptcy. Which in turn means an immediate collapse of the US dollar.
For two months, this topic has been actively discussed in the US Congress and in the US government. The US Congress has raised the national debt limit countless times in the past, although Republicans and Democrats have clashed before the decision to raise it. But at the last minute, the show is always stopped and the decision needed by the Treasury Department and the US government is made, the “ceiling” is raised again.
Some keen observers note that this year may not be “business as usual.” Some of the “elected people” on Capitol Hill have taken a hard line of refusing to raise the debt ceiling. Conspiracy theorists believe that the requisite number of congressmen and senators under the command of the “deep state” will vote against it. It’s as if the “deep state” has already decided it’s time to “kick out” America.
Today, many American politicians and businessmen do not hesitate to talk about sovereign bankruptcy and the collapse of the dollar. Thus, on April 20, the billionaire Elon Musk, commenting on the publication of the White House criticizing the Republicans who are opposed to raising the ceiling of the national debt of the United States, said on his Twitter: “Given federal spending, it’s not a question of if bankruptcy will come, but when. “
And former US President Donald Trump on April 14, during a speech at the National Rifle Association forum in Indiana, said: “Our currency is being destroyed and soon it will cease to be the world standard. It will be our worst defeat in 200 years. This was unthinkable just a few years ago, but it’s happening right before your eyes.”
There is another scenario that can be called “transition of quantity to quality”. America can delay its sovereign bankruptcy, but it cannot last forever. America has a reserve of time to maintain the current state of the dollar, but when this reserve is exhausted, the US currency could collapse sharply.
Many experts are paying attention to the fact that the budgetary costs for servicing the government debt are starting to increase quite rapidly. The size of these costs depends not only on the size of the public debt, but also on the interest rates on the US government debt. And these interest rates, in turn, depend on the main interest rates of the US Federal Reserve. For more than a year now, the Federal Reserve’s main interest rates have been steadily rising.
By the way, in the 21st century, the cost of servicing the national debt has become the second largest item after defense costs in the US government budget. In 2000-2001, these costs amounted to about 380 billion dollars per year.
In 2003, they had their minimum value in this century – $320 billion. And already in 2019 they reached $580 billion. In 2021, there is a slight decline – to $470 billion debt. And now, at the end of January this year, those costs on an annual basis (ie from February 1, 2022 to January 31, 2023) have increased to $ 773 billion.
More up-to-date estimates have already appeared – from the end of March 2023. On an annual basis, the cost of servicing the public debt crossed the $800 billion mark. Mark Cudmore(Mark Cudmore), macroeconomic strategist at Bloomberg, wrote in mid-April: “Expenses [за обслужване на държавния дълг на САЩ] continue to grow almost parabolically, so we can probably expect the titles to hit the $1 trillion mark later this year. “
For reference, I note that defense spending in the US budget last year was $ 750 billion. This year, according to the 2023 budget law, it should amount to $ 858 billion. So this year, for the first time in almost 250 years .years of history, the cost of servicing the US national debt is very likely to become the largest item in the federal budget. And this is a very serious “bell” for the US dollar.
P. S. The fact that America is indeed threatened by a sovereign default is evidenced by such an indicator as the cost of treasury insuranceis bonds against the default of the US government debt – CDS (credit default swap – quite a popular instrument in the financial world). It has now jumped nearly five times compared to the end of last year.
To somehow mitigate initial concerns about a possible sovereign default, the Federal Reserve took an unprecedented step: in the event of a default, it promised to massively buy US bonds and thus try to artificially prop up the debt market. However, the probability of sovereign bankruptcy in the United States is estimated by experts to be the highest in the 250-year history of the state.
Translation: ES
Subscribe to our YouTube channel:
and for our Telegram channel:
#dollar #collapse
