A Crash in the Dollar Is Coming | Hacker News Reader

A Crash in the Dollar Is Coming

bloomberg.com

46 pointsmancerayder88 comments

Maybe.

The article's whole argument centres on whether the US' place in the world is waining or not. That isn't really the point. The dollar is the world's currency because it's the most stable of a bad bunch of options. For another currency to displace it, that currency would presumably need to be seen as more stable than the dollar at that time (and probably by quite a bit to elicit wide change).

What would replace the dollar? The yuan, euro and pound all have a history of fiddling whenever it suits the government of the day, so why switch from the dollar?

"Already stressed by the impact of the Covid-19 pandemic, U.S. living standards are about to be squeezed as never before."

The US economy is driven by it's companies, who enjoy lucrative tax arrangements and a lot of leeway relative to other jurisdictions. Google, Amazon, Facebook, Apple and Microsoft are going nowhere, and neither is anyone downstream from them. They aren't going to get a better deal based on tax or red tape anywhere in the world.

What fiddling has been done to the euro?

I wonder if the poster was referring to Quantitative Easing, but the Federal Reserve has been doing that as well.

Yes, I was referring to QE, which is much more disruptive in the eurozone than in the US, even at lower volumes.

In the US, you have a central bank that is tasked with protecting the economy of the country, and the central bank is responsible for the money supply. Same in the UK and almost anywhere else.

In Europe, the central bank is tasked with protecting the economies of 19 different countries who each have divergent tax and expenditure strategies (some markedly so), meaning the currency is subject to the fluctuations caused by any number of those states getting into difficulty at any time, which happens frequently.

Is there any data backing this that shows the Euro is less stable than the USD?

It seems like it would be a fine choice for a reserve currency to replace USD, if USD goes to shit.

Remember it doesn't have to be better than the USD ever was, it just has to be better than the USD now.

Greece crashing barely budged the Euro, though.

Seeing the ongoing cases in front of the european nations supreme courts [1], the ongoing debates within EU-nations and between them, about in which direction to steer the currency or about what country benefits the most: alledgedly always the one country a political camp of another country hates the most. Just think about matching the world-views of far-right Greek parties with far-right German ones and you'll see that the Euro has plenty potential for future "fiddling".

[1] https://www.nzz.ch/wirtschaft/nach-ezb-urteil-bundesbank-sie...

Seriously?

https://www.forbes.com/sites/isabeltogoh/2019/09/12/what-to-...

https://www.intereconomics.eu/contents/year/2016/number/4/ar...

https://www.investopedia.com/articles/investing/070115/under...

The Forbes and Intereconomics articles are both about quantitative easing (QE), which is also performed by the US Federal Reserve.[1][2] In your original post, you had implied that the euro was being manipulated in a way that the US dollar is not, so QE is not enough.

The Investopedia link is about Greece, and it does not even mention QE, let alone any other type of currency manipulation.

1. https://www.ft.com/content/11b338a2-6d0c-11ea-89df-41bea0557...

2. https://www.fool.com/investing/2020/03/23/federal-reserve-pl...

I don't want to repost a reply from elsewhere in the thread but as it's directly relevant:

Yes, I was referring to QE, which is much more disruptive in the eurozone than in the US, even at lower volumes. In the US, you have a central bank that is tasked with protecting the economy of the country, and the central bank is responsible for the money supply. Same in the UK and almost anywhere else. In Europe, the central bank is tasked with protecting the economies of 19 different countries who each have divergent tax and expenditure strategies (some markedly so), meaning the currency is subject to the fluctuations caused by any number of those states getting into difficulty at any time, which happens frequently.

Yes seriously, I don't follow news on all the worlds currencies. Don't be a dick.

As a European I really don't want the euro to replace it as the world currency, but I don't think you're fair in your evaluation, the euro hardly has an history of fiddling depending on today's need. Even what it had was very small compared to the others dollars included, and still matched the need to stabilize inflation at 2% as much if not more than the need to help the underlying countries' economies.

And I say that as someone who believe we should have used it more to get out of the slump after 2008. Your comparison is incorrect on that point.

Not the OP, but I think the printing money in response to slow economy is what they are referring to. The U.S. Federal Reserve certainly did so as well, but the point is if the Euro is willing to tolerate (or even encourage) extremely low or even negative interest rates in response to a slowdown (unlike, say, gold, which has no central bank), then it is not much different than the dollar in that respect. Perhaps no worse, but also not really better, and so not much reason to switch from the status quo.

I am not saying it is a reason to switch, I don't think it is, I'm just answering thos specific points.

"Stability, predictable" is the euro's mantra, literally the only thing they follow is do whatever is needed to keep inflation at 2%, period.

And then the specific line from parent I answered to

> "The yuan, euro and pound all have a history of fiddling whenever it suits the government of the day"

This is absolutely not true for the euro. I wish it was a bit more.

This is absolutely not true for the euro

It is indeed true. The ECU was a basket of the currencies of the European Community member states, which in it were tied at a fixed rate (The ECU later on was converted 1:1 into euros as were the nations currencies exchange rates). That fixture already was enough 'fiddling' to enable speculators to "break The Bank Of England".

What does the mechanism used to create an entirely new currency by converting old currencies to it have to do with the day to day operation of the Euro after its creation?

The € has about as much government intervention as the $ has. I'd be glad if someone could prove me wrong.

I don't think inflation is a good indicator of the kind of stability needed here. What I believe matters the most is the the political stability of the EU as a project, and the eurozone as a community. Over the past 15 years, we've seen multiple episodes of: rise of autocratic rulers in the east, growing political influence of Russia, rise of right/left-wing anti-European political parties who want out of the euro, Germany threatening Greece with expulsion from the eurozone, etc.

It's hard to imagine the world betting on the Euro for the next 50 years having seen this happen times and times again over the past decade or so.

And through all the that, crisis of all sorts (debt, migrants, political, ...) the euro has not lost a single member, it has not jumped wildly in value from week to week, and it has not started including whatever country it could, keeping to its slow and controlled accession process.

Even the far right in France and Italy has stopped putting "drop the Euro" into their manifesto, something that was one of their top 3 bullet points since its creationg and up to merely 5 years ago. Even they don't believe in its end anymore.

Agreed, but I'll quote Reid Hoffman's definition of trust as "consistency over time" as an indication that it will take decades to build that trust.

Sure, except these same nations and states have had that problem for a lot longer than the life of the Euro, AND they had wars on top of it. For centuries. The Euro does mitigate that likelihood, even if there are protests and the rise of nationalism. There were protests and nationalism prior to any Euro. Now it's harder to produce a war industry when your industry and economy are so intertwined with another country's.

Yeah, you just have to run faster than the other campers.

But with all currencies in bad shape, you don't want to store wealth as money.

I've been trying to decide if inflation would be bad for stocks. I frequently see anonymous internet people say/presume it would be fine, or talk about "asset inflation" as though printing money would obviously inflate stocks.

However, my first instinct is, wouldn't it be like the 70s, when stocks got down to single digit P/E ratios? Inflation, historically, seemed really really bad for stocks. But then I think, well, that may have been because of the gold standard which distorted things until we were forced to give up on it.

So I was thinking along these lines - the big American companies are multinationals, which means they run businesses that have customers and costs largely in local currency all over the world, while they are going to have stock priced and dividends paid in US $. So maybe they are essentially immune to inflation now. If the dollar halves, they will just go on doing what they do, and twice as many dollars will come out.

Maybe the world is not dependent on the dollar because of globalization.

I wonder if we might see the same pattern with respect to dollar inflation as COVID - the huge and high tech companies will be unexpectedly advantaged, while the smaller non-multinationals will be seriously wounded.

That and it would require an extraordinary coordinated effort among basically every other country in the world to de-dollarize. The whole financial system is based off settlement in USD. A switch away from dollars wouldn’t be due to a collapse in value vis a vis other currencies, it would be due a collapse of the United States as a country, and that would probably take more than a few other nations down with it.

> Google, Amazon, Facebook, Apple and Microsoft are going nowhere

They also don't employ very many Americans. America's corporations are great for Wall St. and the neighborhoods around their HQs but America is a nation of more than 300 million people.

I agree with you except for one thing: I think that no single currency will replace the dollar. The replacement will be a basket of currencies that also includes the dollar.

It seems crazy, I think, to replace one single reserve currency with another. A basket of currencies makes the most sense.

Wouldn't the basket of currencies just end up being traded as a single thing?

Finance loves abstraction just as much as tech it seems.

Likely, but that sort of framework makes it easier to adjust the relative share of each component currency over time. If only as a separate, more popular bundle.

the basket can be adjusted, just like eg. the s&p 500 index.

Does it though?

Logically that's what we should be doing now (and it sort of is - all of those currencies are freely tradeable on the markets today), and yet we still use the dollar as the base currency for almost everything. We don't have to, but we do, because otherwise you don't have a single, comparable figure you can place on anything.

I get that not having a single figure is entirely the point, but even now, I don't think of bitcoin in terms of what it costs in pounds (even though UK here), because that's not how we collectively value it for comparison's sake.

I think the US would have to destroy its' economy entirely (or enter a period of genuine hyperinflation) before we move away from it as a base currency.

It's not necessary that the thing that replaces the Roman Empire is a new Roman Empire. It will be something different.

Also if US strength depends on the loyalty of big capitalism then I have bad news to share.

What are the lucrative tax arrangements that are keeping them here? What about the US's tax structure is better than Switzerland's?

https://taxsummaries.pwc.com/Switzerland/Corporate/Taxes-on-...

Here are the other articles the author has written for Bloomberg: https://www.bloomberg.com/opinion/authors/ANXbd-tdHWs/stephe... From this list, you can see a theme in his messaging.

Thanks for that link, I found the OP pretty specious and wanted to see what else the author had been up to.

I assume you mean the article/author, and not the person on HN who submitted the article? OP is understood to refer to the latter.

He was the chief economist of Morgan Stanley and his speciality is China. Why is he necessarily a paid operative of one thing or another (that's the absolute implication here). People can believe things. And anyway that's the point of argumentation, right, to have a back-and-forth of ideas? You did see he had an argument with facts, that can be proved or disproven, right?

Not just Bloomberg.

Stephen Roach: US has basic misunderstanding of how tariffs work (http://en.people.cn/n3/2019/0619/c90000-9589454.html)

In the rush to demonise China over trade, the West has failed to give Beijing enough credit for its green leadership (https://www.scmp.com/comment/opinion/article/3030079/rush-de...)

Dismantling global supply chains would deny a coronavirus-torn world collaborative opportunities (http://www.bjreview.com.cn/Opinion/202004/t20200429_80020252...)

Yale’s Stephen Roach questions why Huawei has been ‘singled out’ for sanctions violation (https://www.cnbc.com/2018/12/14/stephen-roach-asks-why-us-si...)

Wow, thanks for providing this context. Given he is a faculty member at Yale, and publishing a lot of seemingly slanted pro-CCP content; I'm wondering if he's being looked at by the FBI for potential association with the CCP's Thousand Talents program.

https://www.taiwannews.com.tw/en/news/3929496

Yale helped Mao to get into power in the early 1900s. From Yale Daily News:

http://digital.library.yale.edu/cdm/fullbrowser/collection/y...

"William F. Buckley was not the only Yale figure connected with the Presidential trip to China. Without Yale's support Mao Tse Tung may never have risen from obscurity to command China..." (And these guys are bragging about it in 1972, after the despicable "Cultural Revolution" was winding down.)

Also note that Yale was initially funded by the Russels, the most successful family of opium dealers in America. Why is this important? Well, if you're dealing opium at a high level back then, you had a connection with the British powers that defeated China in the Opium wars. What happens after a nation is defeated? You install a new government that does what you want.

Mark my words: the criminals that run this world have a long-term plan and the type of government seen in China is their model for what's coming for everybody after they've concluded their work in causing the decline of the US. It's fucking scary and I really hope I'm wrong.

Wow. mind=blown.

The risks that he mentions are not far fetched, but are probably not the biggest risks the Fed should worry about. It does make me doubt his predictions that in the 2009 financial crisis he also predicted that inflation would pick up, which didn't happen.

In both crisis he mentioned stagflation, which can happen when there is a supply shock (like oil prices increasing) and governments growing the money supply too quickly. Now we are suffering a supply shock but also a big demand shock (just look at oil prices...) which makes the situation different. This doesn't mean that inflation won't increase once the first stage of the crisis is over (specially in food, which will impact developing countries the most), but I think it is far from the most important thing to worry about right now.

There is, no doubt, a dollar crash coming at some point in the future. That's kind of like saying a recession is coming; always true, but without know when, it's not to useful. I have read articles saying that the dollar's days of special status are ending, for at least 20 years now. Someday it will be true. Don't bet on it being soon.

Given that none of oil, bitcoin, euro, yen, yuan, etc. seem to be skyrocketing in (dollar-denominated) price, it doesn't seem like the current environment is any different in this respect. Gold is the only store of value that seems to be going up in dollar terms in a major way. I don't doubt that gold is a good store of value, but I don't think (for logistical reasons) it will displace the dollar any time soon.

Someday, it will be true. Is this the time? I suppose it could be. But we keep hearing this, every few years for decades now.

Not identified in Roach's scenario are the beneficiaries of the coming crash of the dollar. Judging by his regular criticism of U.S. trade and foreign policy in publications such as People's Daily, Global Times, and Beijing Review, that would be China.

The US would lose, and so would those who hold dollars or dollar debt. China would also lose.

But that would weaken the dollar's position and thus lead to an increase in the use of other currencies, and in that aspect China and the EU would gain.

The US is engaged in a modern version of Mutually Assured Destruction (MAD) game theory using using national debt backed in USD instead of nuclear weapons. Any strategic move against the dollar by another currency endangers the value of the country's economy because they hold so much US debt. Try to screw with the US and you will be destroyed faster because of the way debt markets work

Can China move their Yuan into a premier position by lowering the dollar? NO WAY. The minute their US denominated debt value reduces, their economy goes bust

In the end, as long as the US has the most distributed debt, the biggest bombs, and the most aircraft carriers, the dollar stands supreme and will even survive the marginalization of petrol.

"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. Paul Getty

In this situation, China would be the bank? Not, I should add, a long-term stable situation; sooner or later the bank will have a liquidity problem, and then you have a problem when you need more cash. But it probably does keep the U.S. and China from rushing as headlong into enmity.

Overly simplistic view that misses out on a lot of nuances about who in the US benefits and who is harmed by the dollar system. For a much better essay see here: https://phenomenalworld.org/analysis/the-class-politics-of-t...

As someone who's lived through significant inflation in his lifetime, American's are ill prepared. In my experience, the government will do everything possible to hide the fact that inflation is even happening. "Official measures" of inflation won't begin to capture the problem until the damage is already done. People buying debt at these absurdly low interest rates have, quite frankly, lost their minds.

There's not many options to protect yourself either. Stocks? Maybe, but a lot of companies will go bankrupt. Gold? Maybe - but if you're investing in paper gold it likely won't be there when you need it...if you're attempting to hold physical it can be easily stolen.

Preparing for this the second time in my life, I'm opting for Bitcoin and real estate (with nice fixed-rate mortgage debt to purchase). Fingers crossed...

What did you experience the last time significant inflation occurred? Did you observe any early indicators then on that you're looking out for now?

Luckily I was young and didn't have much to lose. We didn't experience hyperinflation, maybe something like 40-50% change in prices. I was hourly at the time but it took a while before I felt like my purchasing power was back to being on-par with what it was prior. When people started to feel prices were rising, everyone ran out to buy electronics -- tvs, stereos, anything. The hope was they'd be able to re-sell them at a good price. I've learned that inflation is uneven - it doesn't uniformly increase prices everywhere. In the US I just watch the charts of M1.

Another way to think of it (sadly) is that companies that are over-levered can do well, since their income stream is in real value, but their debts are in dollars. If you want to cynically think America is kleptocracy for the elite, and the elite are heavily invested into over-levered companies managed by PE firms, then you might even expect this to happen for their sake.

Everyone tries to flee into real estate. That just brings on the next real estate bubble.

The point is to have a large amount of fixed-rate debt that'll evaporate due to inflation. If there's another asset class I can borrow money at a fixed-rate of 3.25% I'd love to hear it.

Bitcoin has certainly never crashed in the past. ;-)

I strongly considered purchasing gold. I don't trust the paper-gold markets. I just don't know how to store it safely in my apartment. Bitcoin for sure has its faults...but for whatever reason I feel safe with it.

Real estate and gold always work out, as long as you don't need to cash out without any hindsight.

Bitcoin makes no sense,it wasn't a good store of value when things were stable and it won't be when things are unstable. It's a bet, and every cent put into it should be a cent you're willing to lose.

Default safe stocks are probably the safest thing to put your money into, spread it all over the top index instead of one or two bets. If the entire top index fails, then you have bigger problem anyway because the economy of your country has disappeared

If you had bought a hundred dollars worth of Bitcoin back in April of 2011 (parity with the US dollar) and sold it at it's most recent all time low on December 16th 2018 you would have $320,000. If you sold it today you would have $971,900. Volatile? yes. Good long term store of value? All available data indicates yes.

Why are you confident that your bitcoin will be there when you need it? Have you followed all 793 (and counting) steps in the latest 'how to secure your bitcoin' guide? Epoxied all your USB ports? Buried your private key backup USB stick in your garden under the birdbath? etc etc etc...

It's not that hard to secure Bitcoin these days with a hardware wallet like Ledger. If you use a passphrase, you don't even really have to worry about your recovery phrase being stolen (although it would be a good idea to move your coins).

> People buying debt at these absurdly low interest rates have, quite frankly, lost their minds.

how does this jive with

> I'm opting for...and real estate (with nice fixed-rate mortgage debt to purchase)

Honestly, I don't have a finical background. But isn't a mortgage just buying debt that is slowly paid off. I don't think real estate is a terrible strategy, but it does not always raise in value. 2008 was a reminder of that for a lot of people.

People buying debt are the people buying bonds. Would you lend 100k to someone for 30 years at 3.25%? If you do, I think you're foolish.

However, if you're borrowing 100k from someone at 3.25% for 30 years you'll likely be very happy you did.

Thanks for the answer. That appears to be a logical answer.

A mortgage is selling debt, your own debt.

> Stocks? Maybe, but a lot of companies will go bankrupt.

Exchange traded funds aren't that vulnerable to individual drop outs.

> ...if you're attempting to hold physical it can be easily stolen

If your only argument against physical gold is an inadvertent change of ownership then I have good news: They offer insured safe deposits now for a couple of bucks :)

Yea, maybe an insured safe deposit box is the way to go. I'm not pretending to know the way to survive what's headed our way. There's a lot I like about bitcoin, but I don't know that it's the right choice. Just my personal decision.

Safe deposit box: an asset of the bank in case of liquidation, the contents is not yours when you'd most need it. Insured: Also a counterparty risk: solvability of the insurance company.

At least here where I live (Germany) deposit content is not an asset of the bank (“Sondervermögen”). It cannot be used for liquidation if things go south for the bank. I assume this is true for most parts of the globe.

The expansion of the Fed's balance sheet is just extraordinary... given the news coverage in other areas, this seems like a huge piece missing from public discourse.

https://fred.stlouisfed.org/series/BOGMBASE

While the gigantic increases in monetary base in the 2008 crisis didn't cause inflation, I (as a layperson) don't know that is too relevant. In 2008 there was a huge decrease in monetary velocity, meaning the total money supply didn't jolt up.

Today, this seems very different, with a gigantic jolt in the M2 measure of money supply.

https://fred.stlouisfed.org/series/M2

Quite scary to me to build this crisis before the previous crisis was unwound.

2008 monetary expansion did cause inflation, in all asset classes.

Yes the fed's balance sheet has inflated, but it has inflated at the same time as dollars have stopped flowing out of the United States through trade and tourism.

The global economy needs dollars:

- 84% of all non-domestic debt globally is US Dollar debt. - Around $100trn of global debts are denominated in US Dollars.

This creates a tremendous demand for dollars, and if they aren't flowing through trade and tourism, dollars will need to be purchased on the spot market or missed debt payments will make these foreign cos go BK.

US Fed's monetary base inflation is different from the ECB and Japanese Fed in that the world will sop up basically all of the money it prints. In order for the US Fed to have the same impact on inflation, they need to print multiples of what the ECB and Japanese Fed print.

I agree in the end the dollar will come, I just think we will have a dollar bull rally before then.

See this thread from Raoul Pal: https://threadreaderapp.com/thread/1264224744271945728.html?...

Of course the crash in the dollar is coming, but no one knows when. I read a good book on the subject "Dedollarization" a few months ago which I recommend both as an interesting read and also because the authors' analysis seemed right on.

If I were entering into a betting pool with friends, I would bet on it either happening soon (like this fall) because of our political and covid-19 situation but if we get through the near future without a dollar crash, then I would bet on about 5 years from now.

Interesting times, my friends, interesting times.

What do you suspect would replace the US dollar?

A basket of currencies, that would also include the dollar.

Somewhat true. The dollar's place as the world currency today stems from not just its stability and negligible political volatility but also the key role the US plays in keeping the world trade (most importantly oil) efficient with its gargantuan deployment of armed forces around major trade routes. There has been a significant shift in the latter policies in the last 4 years that is bound to cause some reverberations as we step into the next decade.

There is no alternative. Really, all other currencies are just trailing the US dollar as the world leader in printing.

However, yes, the world is sick of using the dollar only. If another viable alternative shows up and erodes only 10-20% of global transactions, the US dollar will decline rapidly.

The only way I can see this happening today is with Euro growing balls to buy oil in euros only or island nations around China using Chinese yuan.

Do people actually believe that you can create trillions of new dollars without that having an impact on the value of each dollar?

It can if other processes are effectively destroying dollars at a similar rate. Modern economies are credit economies with the majority of money in circulation being multiples of M1. If there's a credit crunch, vast amounts of money can be thrown into the fire very quickly.

The Fed thinks we are having or are about to have a 2008-like deflationary credit crunch. If they're right, then we will not see massive inflation. If they're wrong, we may.

In your example, it still devalues the currency. The devaluation is just offset by other factors.

Of course, why not? It's magic money. Top players will price things in such a way that inflation is still consistent so that their own money is still worth something.

bullshit. is dollar overvalued? purchasing power index of the U.S. is equal to most other developed countries.

https://www.indexmundi.com/facts/indicators/PA.NUS.PPPC.RF/r...

Right - but this neglects the fact that the US has printed an enormous amount of dollars to finance an incredible amount of spending. So sure - the purchasing power is on par with other countries, but those other countries haven't had the luxury of printing trillions to finance themselves.

They had. Japan printed a lot more in terms of GDP. In fact U.S. debt is pretty much average looking for the developed world.

The biggest problem with the dollar is America's ruthless crackdown on dollar transactions, examining everyone and criminalizing those who break the rules.

That isn't bad, the problem is you never know who's going to be in the bad box. Iran, Cuba had agreements with Obama administration and trade was opening up then a few years later you go to jail for making dollar payments with Iran see Huawei exec. Places like Indonesia, Saudi, Turkey, Argentina, Egypt are sometimes friends then suddenly enemies. I dont know why they will continue to want to hold dollars. I think if we see another 10 years of the Euro holding together and/or some good crypto currency dollar will fade.

The article focuses on "savings", but much of the impactful forces were already in play. This article was discussed previously and had much more valuable insight: https://www.lynalden.com/global-dollar-short-squeeze/

Nit pick:

> Look no further than the Trump administration. Protectionist trade policies, withdrawal from the architectural pillars of globalization such as the Paris Agreement on Climate, Trans-Pacific Partnership, World Health Organization and traditional Atlantic alliances

TPP was the worst example to throw in there. It was a horrible proposal, that both parties hated, and both presidential candidates said they would withdraw from. Either the author was trying to just make it look worse, or had zero clue about the mulit-year TPP debate.

https://archive.vn/NIw0L

One thing this op-ed is not mentioning and that is becoming a stronger motivator for many countries to find an alternative global currency is the abusive use of economic sanctions that started with the Obama administration, and almost spiraled out of control under Trump.

If any bank wants to transact with dollars inside or outside the US, it needs to either open "an account" with the federal reserve, or work with a bank which has one as an intermediary. If a company ignores sanctions put in place by the US against another country, industry, company or people, their bank is liable, and can have its license to transact with dollars suspended, essentially cutting it off from the global economy.

Back when the US believed in multilateralism and concentration with its allies, sanctions were perceived more positively that they are today in the America first and alone era.

So where to move the money? EU? China? Australia?

I buy toblerone bars.

Paywalled, try:

https://www.yahoo.com/news/crash-dollar-coming-210024166.htm...

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