Study: dollar threatens to collapse soon - ForumDaily
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Study: dollar threatens to collapse soon

The largest global think tanks and investors for several years announce the impending collapse of the dollar. A powerful blow to the currency should lead US currency deficit, US monetary policy, accumulated imbalances and the coming recession. Recently, one of the world's largest investment banks, Saho, published a report entitled “The Killer Dollar,” in which it predicted great difficulties for Americans, writes about this "Observer".

Фото: Depositphotos

In economic history, 2019 may leave a mark as the beginning of the end of the largest monetary experiment, Saho believes. A global recession is on its way, and the American currency is in danger of collapse.

Any economic system has periods of growth and decline. Monetary policy also has its own clear rules. Everything works smoothly until the rates get too high or too low. For example, two countries - Argentina and Germany. The Germans set themselves very low rates, and the Argentines - on the contrary. In theory, the money should go from Berlin to Buenos Aires. But in fact the opposite is happening.

The capitals are distributed unevenly, and the too expensive dollar and huge US debt are added to this. The only tool that has not yet been used to contain the situation, analysts say, is the devaluation of the US currency. But there are two big questions here: whether the US Federal Reserve System (FRS) will do this and whether it has enough tools for this.

On the subject: How the dollar has withstood the gigantic public debt and US budget deficit for decades

The high dollar exchange rate is a problem in itself. “If the dollar rises too much, stress on the system increases: not only for U.S. exports, but also for emerging markets with their high dependence on dollar financing and export machinery,” the report said.

At the same time, President Donald Trump, despite the Fed's very restrained policy, advocates for a lower dollar. True, for now, everything he does is trying to put pressure on an independent regulator. And this is very difficult to do in the already established system of balances in the USA.

The six-year period of the “weak” dollar ended exactly 11 years ago. And since then, the American currency has increased in price by as much as 22%. The head of the investment bank's strategy department, Peter Garnry, recalls that the probability of a large-scale recession in the coming year is up to 40%. For now, the dollar remains stable, primarily due to the fairly high rates of development of the American economy.

On the subject: Dollar: the history of the American symbol

“There is only one thing that really matters these days and that is global dollar liquidity. We operate in a dollar-based world, so USD liquidity is key to the global economy and financial markets. Since 2014, the world has been faced with a structural problem of the dollar, its deficit against the backdrop of the Fed’s tightening policy,” notes Christopher Dembik, head of macroeconomic analysis at Saho Bank.

Still, according to Saho, Trump can apply the law, adopted even more 80 years ago. It allows the White House to expand its powers. Over the past 15 years, the US government has resorted to such an instrument only three times.

In 2018, the American currency gained 8% compared to its “colleagues”. But this year the dollar's position has weakened. The Federal Reserve's loose monetary policy provided the impetus for the devaluation. The 2018 trend may be reversed. And one of the main reasons is a change in US policy. There will be no more interest rate increases (at least this year).

On the subject: The biggest in 7 years: US budget deficit reaches almost $ 1 trillion

And in the longer term, a global shift towards savings is expected, and the United States is in a vulnerable position in this situation. Countries with surplus (surplus) current accounts will behave more restrained, but the United States with the status of the largest debtor in the world will be under attack.

“We are waiting for a series of changes in the global economic situation, which, along with several negative medium-term factors, indicate a decrease rather than an increase in the dollar in the 2019 year,” Goldman Sachs said in a macroeconomic forecast.

It is precisely because of the high deficit that the dollar could fall in price by 30%, said investor Ray Dalio. “We have to sell a lot of Treasuries, and we won't be able to buy them all,” he said. “The Federal Reserve will have to print more money to fill the deficit, it will have to monetize more, and that will depreciate the value of the dollar.”

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