The close collapse of the dollar: scarecrow financiers or reality

Index
    Крах доллара
    The collapse of the dollar

    The issue of the depreciation of the dollar is relevant not only for the United States, but also for citizens of most countries of the world. For the average worker, a drop in the dollar gives hope for a halt to the depreciation of his salary and, at least, not more expensive products, and for the investor it is a signal for action and the possibility of generating income. And economists and politicians make forecasts on the impact of the fall of the dollar on the global economy.

    So will the dollar collapse in the near future, why is it even possible and how to make money from it?

     

    The dollar will collapse soon - as much as possible

    Рухнет ли доллар
    Whether the dollar will collapse

    Forecasts about the fall of the dollar appear almost from Gulf wars, however, in 2019, they acquired a justified character and were built mainly on the economic problems of the United States, and not on politics.

    And if not everyone believed this before quarantine, because Since the United States has maintained its currency for many years despite problems, Quantitative easing and recent events have significantly reduced confidence in a stable dollar. The main reasons for the possible collapse:

    Баланс ФРС в 2019-2020-м
    Fed balance in 2019-2020

    Monetary growth the base on the one hand stimulates the growth of markets (for which quantitative easing is carried out), but on the other hand it leads to inflation and a decrease in the value of the currency.

    • The growth of government debt - according to the latest data from the Ministry of Finance, the US government debt is:
    Размер госдолга США по данным Министерства Финансов
    The size of the US government debt according to the Ministry of Finance [ 19459006]

    Moreover, the threshold of $ 24 trillion was broken only on April 7th.

    In general, the presence of a public debt is normal, this means that the state spends money on stimulating the economy (read - it pours more money into the economy) to keep rates low, but it is normal only if this GDP public debt exceeds or indicators are at least equal.

    Then the printed new money is backed up with goods and services produced. If the ratio is negative, it means that more money is being poured in than goods are produced, and since 2008 the US public debt has been growing faster than GDP:

    Данные по ВВП и Госдолгу США (красный — госдолг, синий — ВВП)
    Data on GDP and the US Debt (red - public debt, blue - GDP)

    So, in 2019, the nominal growth of US GDP was 2.3%, while the budget deficit was 4.6%, and the budget deficit is closed according to the following scheme - the Treasury needs money, it issues debt bonds.

    These bonds are bought by the Fed, printing the right amount of money for this. The problem is that the deficit is double the profit margin. Those. ideally, the Treasury could close only part of the deficit of 2.3%, which would cover GDP growth, but not 4.6%. And such an imbalance for more than 10 years.

    • Increase in unemployment and decline in production - according to NewsSky since late March, more than 22 million Americans have applied for unemployment benefits:

    [ 19459001]

    График роста безработицы в США от Bloomberg
    US unemployment rate graph from Bloomberg

    Due to quarantine, US unemployment is turning into an overclocked flywheel, gaining momentum every day. Here are the unemployment forecasts for the second quarter:

    Прогноз по безработице от аналитиков Piper Sandler
    Piper Sandler unemployment forecast

    32% - more than during the Great period Depression Those. if in the 30th every 4th american was unemployed, now now it can be every 3rd. Well and more “encouraging” forecast from CBO (Congressional Budget Office):

    Прогноз по безработице и падению ВВП от СВО
    Forecast of unemployment and a drop in GDP from the NWO

    They believe that unemployment will increase by 10%, reaching the level of 2009, but GDP may decline by 28%, which is almost an apocalyptic forecast. And the impact of the fall in GDP on the dollar will only increase in combination with quantitative easing, since not only newly printed money from the Fed will be unsecured, but also some of those that were secured last year.

    • Decline in credibility of the Fed by the lenders - in a falling market, there was a rapid increase in demand for US government bonds as a reliable, liquid and safe asset. However, potential inflation and a drop in bond yields (yield to maturity is falling due to artificial increase in demand by the Fed’s massive buying up) makes them less attractive in the eyes of investors.

    If such a policy continues, many bondholders will leave them with a minimum plus, which, under the influence of inflation, will turn into an actual minus. Falling markets will be a constraining factor for some time, but when the economy reaches the bottom, from which the road will only go up, investors will get out of bonds, making the dollar even less well-off.

    • This is necessary for the United States - reducing the value of the currency and stimulating its turnover allows to mitigate the drop in production and purchasing power in the short term. A mitigation policy is not a mistake, it is needed now both to maintain markets and to reduce the cost of servicing the US government debt, which sets a historical record almost every day. In addition, cheap money also reduces the cost of goods produced domestically, which helps protect exports in times of crisis. The depreciation is a necessary measure that the States must take to save themselves from a complete devaluation.

    When will the collapse of the dollar

    Будет ли крах доллара и когда
    Will there be a collapse of the dollar and when

    Despite the large number The reasons that can provoke a fall in the dollar are still difficult to predict at what point they will make themselves felt. Most likely, we are talking about the medium and long term, and the first downturns can be seen at the end of quarantine and in the first months after it.

    So, analysts from the Financial League believe that we will observe an outflow of money from debt obligations after the quarantine is over, as soon as the market stabilizes a little and investors will have the opportunity to invest at least somewhere other than government bonds and gold.

    ☝️
    Moreover, in the next 3-5 years, we can expect a depreciation of the dollar twice.

    But there is also a factor supporting the evergreen . The dollar is the main reserve currency of most central banks. At the end of 2019, 61.8% of the world's foreign exchange reserves were stored in dollars:

    Доля доллара в мировом валютном резерве по данным МВФ
    The share of the dollar in the world foreign exchange reserve according to the IMF

    [19459007 ]

    What does this mean? That most central banks, along with gold in safes (and who can - with oil in the ground) keep tons of dollars that can be calculated in foreign trade operations, pour into the economy to reduce demand in the domestic market and simply store in case of devaluation of the national currency. Now imagine that all these reserves are depreciating. And instead of the previously purchased n-quantity of goods for $ 1,000, the state will be able to buy only half of the n-quantity.

    It is the prevalence of the dollar that forces world states to support the myth of the immutability of the American currency, and that is why the Fed has long allowed itself to print unsecured money that it simply "believed" in. But if confidence in the Fed falls, the share of the dollar in the total foreign exchange reserve will decrease, and if it reaches a critical point, faith in the almighty green paper will simply disappear, and the US will have to provide the dollar only with its economy, with which, as we indicated above, not all in order.

    It is the collapse of the dollar financial hegemony, and not unemployment and new banknotes, that are the most serious threat to the US currency.

    ☝️
    And a decrease in the share in the foreign exchange reserve will take more than a month or even a year, so in the long run the dollar exchange rate will depend on the attitude of the Central Banks towards it.

    What will replace the dollar?

    Что может заменить доллар
    What can replace the dollar

    This question makes sense only in the context of the international economy and the value of the dollar as a world reserve currency. If the credibility of the US financial system really falls so much that states begin to abandon the use of the dollar, then trade and the Central Banks will need its counterpart. Here you can suggest several options.

    Local reserve currencies

    Here is the share of currencies in the world currency reserve

    Основные резервные валюты и их доля в валютном резерве по данным МВФ
    The main reserve currencies and their share in the currency reserve according to the IMF
    Доля резервных валют без учета доллара и евро
    The share of reserve currencies excluding the dollar and the euro

    If dollar hegemony collapses, then it’s obvious the share of its “competitors” will grow, and in the first place - the Euro, at least in Europe and actively trading with them. In the East, the main reserve rival of the dollar is the growing Yen. And trade unions like BRICS even allow you to abandon the dollar or other universal counterpart in international exchange information (but not from reserves).

    Gold

    Золото как мировая валюта
    Gold as a world currency

    Before the Second World War and the Bretton Woods Agreements, the main reserve asset of the Central Banks there was gold. It was used for settlements in international trade, and the rate of domestic currencies was tied to the “gold standard” (ie, gold reserves in the central bank), rather than purchasing power and GDP.

    Of course, returning to gold is not very convenient, but using it as the main reserve is possible until a new reserve currency is formed. In addition, in favor of gold is the fact that central banks still keep its reserves and, if necessary, can quickly turn it into circulation.

    Cryptocurrencies

    Cryptocurrency is one of the least probable options, but still deserves a mention. Existing cryptocurrencies have no chance of becoming reserve assets (even bitcoin ), but modern technologies will allow the creation of new, synthetic tokens with reference to fiat assets or economic indicators.

    At least this will allow digitizing gold for more convenient use, as a maximum we can see for example the Eurasian reserve token , the cost of which will depend on the economy and internal currencies of the EU, China, the Russian Federation and other countries . In any case, it is more reliable than the dollar, which depends only on the decisions of the Fed.

    It is possible that the destruction of the dollar monopoly will be one of the positive consequences of the impending economic crisis, only while it is hard to believe in the mass rejection of the evergreens.

    The collapse of the dollar and how to profit from it

    Можно ли заработать на крахе доллара
    Is it possible to make money on the collapse of the dollar

    If nevertheless assuming that the dollar will become cheaper by reducing US GDP and quantitative easing, while at the same time starting to lose value in the international market, the only way to make money on the collapse of the dollar is to get out of it in time.

    However, the adoption of such a decision also depends on the country of residence. Economists are predicting a global crisis that hurts all countries, but it is obvious that someone will suffer less, someone more. If there is reason to believe that your country's economy will not collapse as deeply as the US economy or will begin to recover faster, it might be worth getting out of the dollar into local securities and bonds. If the hopes for this are weak, you can go into gold and or a more reliable currency - the same yen or franc.

    Professionals can also consider cryptocurrencies as a source of investment. Of course, against the background of the general crisis, they will sag, but then they have every chance of recovery, because their value is formed on the basis of supply and demand, and not the decisions of the Fed and Trump's decrees. But this market is still unpredictable, therefore, investments in it require experience and thorough preliminary analysis.

    Will it be possible to earn on jumping courses in the short term? It already depends not only on the dollar, but also on your regulator. Following the Fed, some central banks may also start issuing domestic currency in order to stimulate markets and maintain interest rates (then it makes sense to buy a dollar now), or they may not start. The exchange rate, for example, of the ruble is tied mainly to the price of oil, so against the dollar it will change depending on its value and future strengthening is not ruled out.

    This material is for guidance only, created for informative purposes and is not a financial recommendation, motivation for action or analytical forecast.

    Read also:

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