Seeking Alpha - U.S. Dollar: There's Possibility of a Crash

Article by John M. Mason in Seeking Alpha

 “A crash in the dollar is likely and it could fall by as much as 35 percent by the end of 2021.” So writes Stephen Roach of Yale University and the former Morgan Stanley Asia chair, in the Financial Times. What is going on?

To Mr. Roach, the past is catching up with the United States, the present is observing the potential for a financial collapse, and the future will be left with the job of reconstructing a new world. Where is Mr. Roach coming from?

Where Is The Federal Reserve?

As Mr. Roach writes, “The Federal Reserve has recently shifted to a strategy that takes into account an average of inflation rather than a specific target, and promised to keep policy rates near zero for several more years. That means the interest rate channel has effectively been closed.”

Furthermore, as I have written many times over the past twelve months or so, the world seems to have lost confidence in the U. S. federal government and this has added to an already substantial movement out of the “risk averse” foreign money that had flocked to the dollar before.

This loss of confidence has been accelerated at the government’s budget seems to be “out-of-control” with no end is sight to the build up.

And, as I have recently written, “Debt is accelerating everywhere… this is happening both inside and outside the federal government. And, slower (economic) growth makes it harder for the government to reduce the debt burden. It also makes it harder for corporations and other business enterprises to cover cash outflows, thereby threatening their ability to cover debt payments.”

Furthermore, whoever wins the election on November 3, 2020, the fiscal problems are going to be massive.

Dollar Fall

I had been predicting a falling dollar: “I still believe that the future of the dollar is further weakness. The next three months the value of the dollar will be subject to substantial volatility, but the general trend will be more decline. And, to me, there is little or nothing that policy makers can really do to stop the fall.”

But, the scenario drawn up by Mr. Roach is so much more severe. But, the scenario drawn up by Mr. Roach is so much more severe. And if such a crash were to happen, it could be ...

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