A Crash in the Dollar Is Coming — Stephen Roach
The era of the U.S. dollar’s “exorbitant privilege” as the world’s primary reserve currency is coming to an end. France’s then-finance minister Valery Giscard d’Estaing coined that phrase in the 1960s largely out of frustration, bemoaning a U.S. that drew freely on the rest of the world to support its overextended standard of living. For almost 60 years, the world complained but did nothing about it. Those days are over.
Already stressed by the impact of the Covid-19 pandemic, U.S. living standards are about to be squeezed as never before. At the same time, the world is having serious doubts about the once widely accepted presumption of American exceptionalism. Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness. The balance is shifting, and a crash in the dollar could well be in the offing.
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NEW YORK (Reuters) – Speculators’ net bearish bets on the U.S. dollar grew in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.
Financial repression worked after WWII, but it isn’t without costs and risks
Leaders around the world have compared their efforts to bring the novel coronavirus under control to fighting a war. The similarities may not end when the battle to tame the virus has been won, and the debts accumulated by governments have to be repaid.
In the U.S. and elsewhere, government debt is set to soar this year, reflecting lower tax revenue and the cost of financial aid to businesses and households during lockdowns. The International Monetary Fund forecasts that U.S. government debt will reach 131% of annual economic output this year, up from 109% in 2019.
That is a higher debt burden than after World War II. Other countries are facing similarly high debt levels, including the U.K., France, Italy and Spain.