Financial Times: The end of the dollar empire is soon

The Financial Times expects the US dollar to decline by 35% by the end of 2021, due to the collapse of domestic savings and the current account deficit.

“The dollar has always benefited from the fact that there is no alternative to it,” so Stephen Roach, a faculty member at Yale University and former president of Morgan Stanley Asia, described in a report published by the British newspaper on its website, the status of the dollar and its mental image among many, noting that the privilege of the dollar As the world’s dominant reserve currency, it has come under suspicion after a collapse in the dollar encouraged.

Explaining the reasons, Roach emphasized that in the second quarter of 2020, net domestic savings – consumption-adjusted savings for households, businesses and the government sector – returned to negative territory for the first time since the global financial crisis at -1.2 percent in the second quarter, as was net savings. Local as a share of national income recorded an entire 4.1 percentage points lower than in the first quarter, the largest quarterly decline in records dating back to 1947.

Roach says that the net domestic savings rate was only 2.9 percent of gross national income from 2011 to 2019, less than half the average of 7 percent from 1960 to 2005 … and this thin cushion left the United States vulnerable to any shock, not to mention virus disease. Corona.
As the budget deficit builds up in the coming years, the pressure on domestic savings and the current account will increase. The most recent forecast of the Congressional Budget Office estimated the federal deficit at 16 percent of GDP in 2020 before declining to “only” 8.6 percent in 2021. Assuming the US Congress finally approved another round of subsidies.

Stephen believes that the high value of the US dollar makes it particularly vulnerable. Despite recent declines, the general index of the real effective exchange rate of the dollar is still about 27 percent higher than its lowest level in July 2011, and this makes the US currency the most valuable main currency in The world, just as the United States was drawn into an unprecedented current savings account cycle.

Stephen says that with the United States squandering its extravagant privilege, the dollar is now more vulnerable to a sharp correction … a crash looms on the horizon.