The close collapse of the dollar: scarecrow financiers or reality
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
- When will the collapse of the dollar
- What will replace the dollar?
- The collapse of the dollar and how to profit from it
The dollar will collapse soon - as much as possible
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:
- Unlimited quantitative easing policy - under which the Fed has already invested $ 1.5 trillion in the economy and plans to add more in the near future $ 2.3 trillion At the same time, the Fed balance (the approximate size of the US monetary base) has been gradually growing since the end of 2019. And in the last month, the growth rate has become frightening:
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:
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:
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:
Due to quarantine, US unemployment is turning into an overclocked flywheel, gaining momentum every day. Here are the unemployment forecasts for the second quarter:
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):
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
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.
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: