What will happen when the dollar collapses? What will happen if the dollar exchange rate collapses or why this will not happen soon

23.12.2023

MOSCOW, October 18 – RIA Novosti, Maxim Rubchenko. Economist Ulf Lindahl, director of currency market research firm A. G. Bisset Associates, is confident that the dollar is on the verge of collapse. According to his estimates, in the next five years the US currency will depreciate against the euro by 40%. Why investors no longer consider the dollar a defensive asset and what will happen to the ruble exchange rate - in the material of RIA Novosti.

Deceptive growth

Lindahl's statement sounded quite unexpected amid the recovery of American assets after last week's collapse. Thanks to positive reporting from investment banks, US stock indices have almost returned to the levels at the beginning of the month.

The dollar is winning back positions against the euro, Japanese yen and emerging market currencies. Even the Russian ruble on Wednesday suspended its weekly strengthening cycle and fell relative to the “American” by almost 30 kopecks.

Meanwhile, experts point to some features of this recovery that are more alarming than optimistic. The fact is that the rebound in quotes occurs against the backdrop of low investor activity in the stock, futures, currency and US government bond markets.

According to Bloomberg, futures trading volume is now half the average for the first ten days of October. Options trading is barely reaching 70% of normal levels.

On the stock markets, activity is slightly higher, but also not comparable to September figures. This suggests that a significant portion of traders do not believe in market growth and simply do not participate in trading.

“Fear of loss has prevailed over greed,” Bloomberg states. “Too many expect a fall. And it is obvious that no one believes in the sustainability of growth.”

The USA is a source of risks

Investor sentiment is reflected in the results of a survey conducted by Bank of America (BofA) Oct. 5-11 among 174 investment fund managers with total assets of $518 billion. They reported that they had reduced the weight of US stocks in their portfolios by an average of 17% over two months due to increased volatility in US markets.

According to most investors, investing in American assets today involves certain risks. First of all, the trade war (indicated by 35% of respondents).

Trump's tariffs on steel and aluminum imports have already increased costs for many American companies.

Sanctions against Rusal cost American business even more: as a result, prices for alumina sharply increased; by mid-September, this raw material for aluminum smelting had risen in price by 60% compared to last year.

As a result, Alcoa's net profit for the first half of the year decreased by a quarter. Another major U.S. primary aluminum producer, Century Aluminum, warned it expected third-quarter profits to fall by about $40 million.

The US trade war with China has spelled disaster for American farmers. In response to Trump's tariffs, Beijing stopped purchasing American agricultural products. As a result, since the end of May, market prices for soybeans have fallen by 18% (to the lowest level in ten years), and for corn - by 12%.

Wheat in America fell in price by five percent, pork by 29%. Trump threatens China with new sanctions, China threatens an adequate response, so American companies are preparing to calculate additional costs.

Investment fund managers (31% of respondents) consider the policy of the US Federal Reserve (FRS) to be the second most important risk.

“By raising the cost of dollar loans, the Fed is simultaneously accelerating the rate at which it is withdrawing the $3.5 trillion that has been poured into global markets since the 2008 crisis,” said James Knightley, chief economist at ING Bank. “Balance reduction operations have grown to $50 billion a month since October.” : The Fed will cancel $30 billion in Treasury bonds and $20 billion in mortgage bonds."

As a result, firstly, the amount of free money for investment will sharply decrease, and secondly, the yield on government bonds will increase, so funds from the stock market will begin to flow into government securities.

In addition, the cost of borrowing for companies will increase, so that more and more money will be spent on servicing debts and less on development. As a result, the activity of sellers on American exchanges will increase, and buyers will weaken, which will lead to a rapid decline in quotes.

“Tightening monetary conditions in the form of a strong dollar and rising borrowing costs will become a drag on the economy and stock markets,” Knightley said.

Chinese factor

American investors also include the possibility of an economic downturn in China among their top three risks. Its cause may be a combination of two factors - a trade war and China's huge internal debt, estimated at seven trillion dollars.

As Lawrence Fink, head of the world's largest asset manager BlackRock, noted in an interview with CNBC, if "something goes wrong" with these debts or if China has to look for funds for large-scale fiscal stimulus due to a trade war, Beijing will have no other choice. , except for the massive sale of American government debt.

As of the end of July, China held nearly $1.2 trillion in US government bonds. By throwing these securities onto the market, Beijing will doom the American economy to a financial crisis unprecedented in history.

Fortunately, the likelihood of such a development is still low; only 16% of BofA survey participants indicate this risk.

In the current market conditions, investors prefer two main strategies: purchasing FAANG shares (Facebook, Amazon, Apple, Netflix and Google) - 32% of respondents and shorting US Treasury bonds - 19%.

Once the quarterly reporting season ends and markets begin to focus on fundamentals, the most effective investment strategy will be to short US stocks and buy emerging market assets.

The dollar won't save you

The collapse that swept stock exchanges around the world last week has another important feature - along with the decline in stock and bond prices, the dollar also began to fall, although usually the opposite happens. Moreover, the American currency weakened not only against the euro and the Japanese yen, but also against the currencies of developing countries.

This means that investors no longer view the dollar as a defensive asset. Which is quite logical, because the main risks for markets today come from the United States - trade wars, the policy of the Federal Reserve, and a possible collapse in the American government debt market.

Therefore, in the event of a new crisis, investors will likely seek salvation in traditional anti-crisis assets (Swiss franc, gold), as well as assets of countries with minimal public debt denominated in dollars and a small volume of American government securities on the balance sheet of the central bank.

Perhaps Russia best meets these requirements: the volume of external debt is minimal, the Central Bank is steadily reducing the number of US government bonds on its balance sheet and is actively increasing the share of gold in its reserves.

So in the event of a new global crisis, Russia and ruble assets have a real chance of truly becoming a “safe haven.”

Moscow, February 14 - "Vesti.Ekonomika". After a slight correction, the dollar resumed its steep decline: the dollar index dropped to around 89.40 points, and paired with the yen, the dollar is testing its lows since November 2016.

The dollar recovery fizzled out very quickly. It lasted no more than a week.

What's the matter? The US is increasing its budget deficit, and historically such periods have been accompanied by a subsequent collapse of the dollar. However, this time there is a significant difference.

In the past, the budget deficit grew during periods when rates fell, but now they are rising. Therefore, it is quite difficult to predict what will happen. Perhaps we will see such a strong fall in the dollar that no one can even imagine it; perhaps the regulators will still pull off some kind of trick. One way or another, for now, the most likely thing is that the dollar will fall.

The situation on the US debt market remains extremely tense. The downward trend since 1994 has been broken. If the breakout is confirmed, then we may well see an acceleration in yield growth.

There is another problem: now hardly anyone will agree to simply “zero” the dollar, as was the case in 1985. In any case, now we need to monitor the dynamics in the debt market.

Well, the formal reason for selling the dollar so far is various statistical factors. For example, in Japan, data on GDP growth rates was released. Not only did growth slow down sharply to 0.5%, it was also the weakest since the fourth quarter of 2015.

Against this background, quotes for the dollar/yen currency pair fell sharply, reaching a new low since the fall of 2016.

The policies pursued by the Federal Reserve are gradually destroying the US monetary system. The so-called economic stimulus policy is actually another attempt to save the existing financial system, led by the dollar. In this financial system, the debts of bankers are easily transferred to both ordinary Americans and the rest of the world. Not long ago, the American government abandoned strict limits on public debt. The rejection of the debt ceiling showed that the financial structure of their state is just a parody of a working economy with its loss of leading positions, sanctions, wars, economic devastation and fraud on an unprecedented scale. By reducing the cost of money to near-zero levels to ensure the operation of various financial instruments, the Federal Reserve began a very risky game. But the world issuing center could not do otherwise, since they are responsible for ensuring low rates in the absence of demand for United States debt securities.

The American stock market, due to the endless supply of free money, is showing more and more growth records, while the real economy of the United States is experiencing a severe decline, the likes of which have not been seen since the Great Depression. Leading US banks have been bankrupt for a long time, and their main job is to make a profit from trading debt, rather than functioning normally in the real economy. The credit mechanism has long ceased to function properly. Already today, due to lack of demand, about 30% of retail space in supermarkets located in the United States is closed. If you remove various additions from organizations involved in processing statistical data, you can see the real unemployment rate, which is 22%. You don’t need to be an economist or a financial specialist to understand that the country will not last long in this state.

Currently, news is coming out about the suspension of the quantitative easing program and the impending recovery of the United States economy. However, all statements by the Federal Reserve about reducing programs to stimulate the economy with free dollars are a huge lie. In general, economic policy remained the same with one exception - the methods changed. A striking example of the continued pumping of the world economy with unsupported waste paper is Belgium, which, being on the verge of an economic crisis, accumulated more than $400 billion in American debt receipts. America has managed to establish a system for generating demand for its debt notes so well that today the number of orders for Treasuries significantly exceeds the number of issued securities. In the current situation, the United States is no longer able to raise interest rates due to the fact that it will immediately show huge losses. The fact is that banks have invested too much in debt and therefore are able to continue to exist only in conditions of a rising stock market and apparent prosperity.

The most striking harbinger that the dollar is facing an imminent collapse is a reduction in the velocity of money circulation by 4 times, provided that the supply of money has increased by 3.5 times. The reduction in the velocity of cash circulation is not due to the fact that the population began to store it in mattresses. This systemic failure occurred due to reduced economic activity, reduced employment, and destruction of capital. US central banks are at a loss. The bankers have no answers to the growing number of questions, like a snowball, some of them are preparing for a long prison sentence, and some of them, for obvious reasons, passed away. The US banking system itself could be an excellent catalyst for the coming crisis, and if it comes to its aid with a bloated American welfare sector and the continued export of US industry to Asian countries, the dollar will collapse much sooner than most experts expect.

To protect the American debt, the national currency, and constantly postpone the default date, the United States must constantly fight. As soon as any countries stop supporting “American values” or reject the dollar, the Americans immediately send full bombers of democracy there or escalate the revolutionary situation among the masses, through an information war, to overthrow the unwanted regime. Only half of the officially recognized $17 trillion in national debt is a direct result of the ongoing military operations carried out by the United States.

Western countries refuse to completely submit to the United States and destroy a number of large Western banks in order to transition to a new trading system. Against this background, the BRICS countries are simply forced to work on leaving the dollar zone. In addition to strengthening the BRICS countries, Russia entered into an alliance with China and now it is impossible to force them with the same ease to sacrifice their interests for the sake of the richest financial clans. Russia is the largest supplier of resources that are simply vital for any state, and its alliance with China will lead to the emergence of a gold trading standard. It is becoming increasingly difficult for the dollar to lead the global financial system, as it will soon cease to exist, which will happen after the Saudis refuse to trade oil exclusively in dollars. China has long been trying to establish mutually beneficial relations with the royal family, which has absolute power in Saudi Arabia. The decision on further oil trading will be made in the coming months, and if the “verdict” is rendered in favor of China and Russia, the price of oil will be determined in yuan or rubles, which will finally bury the petrodollar. The establishment of a gold standard in the world economy instead of the dollar will cause a wave of redemptions of United States debt obligations, which will very quickly destroy the US economy.

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Strong dollar is not beneficial to the US leadership because it prevents the American economy from realizing its full potential. Therefore, in the near future we should expect reducing its rate. Western analysts expressed this opinion.

The first signs of this can already be seen. At the start of today's trading on the Moscow Exchange US currency sank for 10 kopecks to the ruble. Its exchange rate at 10:21 Moscow time was 65.75 rubles. The euro is also becoming cheaper. Its price decreased by 11 kopecks, to 74.77 rubles, according to the trading platform website.

The dollar remains stable against world currencies. “The US dollar strengthened against the background of favorable data on consumer spending, as well as the fading appetite for risk in response to the downward correction of American stock indices,” noted Alpari analyst Vladislav Antonov (quoted by Prime).

The US Federal Reserve's (FRS) strategy of gradually raising the base rate is leading to a stronger green economy. However, President Donald Trump and the country's Treasury Department oppose this. In the near future, decisive steps may be taken that will lead to a weakening of the dollar, writes Daily Reckoning.

According to the author of the material, James Rickards, the US Treasury has effective tools that will allow it not to resort to direct pressure on the Fed leadership, but to achieve a depreciation of the currency through direct interventions in the market.

Funds from the Stabilization Fund, which is not under the control of Congress, can be spent for these purposes. Its volume currently amounts to about $40 billion. This means that the Ministry of Finance, at the instigation of the head of the White House, can radically influence the situation on the market at any time. There will be enough money to intervene against individual currencies. Most likely, this will be done in mid-November, when mid-term congressional elections are held in the United States.

Experts predict that US currency manipulation will be directed primarily against the Chinese yuan, which recently fell to a 10-year low against the dollar. Trump doesn’t like this, because with a weak national currency, China is rapidly getting rich by exporting its goods to the United States. Another direction of attack could be the euro, which, according to the White House, is “unacceptably weak” against the dollar.

Donald Trump is very determined. He is committed to participating in the 2020 presidential election. For it to succeed, it is necessary to ensure sustainable growth of the US economy. The fiscal stimulus is gradually fading, and therefore the president intends to use the weakening dollar to spur economic growth.

Many people know that the US Federal Reserve has printed so many government bonds and dollars that this money is enough to finance the budgets of all countries in the world. Today, the debt on US government bonds amounts to more than 19.5 trillion. dollars.

Why did it happen so? Also, I think many are aware. The USA in the 90s, after the collapse of the USSR, began to build a global world. In this global world there was a place for everyone, for example, the place of the United States was as the master of the world, the role of Western Europe was the role of the owner’s favorite dog, or cat. China and a number of other countries had the role of a production site, holiday countries were conceived, as well as countries with “raw materials appendages”, believe me, this phrase was invented in the USA, and only then translated into Russian. Countries with “raw material appendages” can also be called countries with “hopelessness”. But more on that in another story.

Actually, this idea was nurtured for a long time and became possible only after the collapse of the USSR, when you could go anywhere in the world, where before you could get a hat, and today you can buy the soul of a good half of the population with freshly printed banknotes. But as usually happens, something went wrong. China has shown its own ambitions and is clearly pulling the blanket of general well-being onto itself, India has also emerged, which no one really talked about 25 years ago, Europe also wanted a dog and came up with the EU with its own currency and a bunch of poor satellites, well, it stands alone Russia, in the eyes of whose leaders one can read the dream of “overwhelming the United States.” And how it all began! What an idea! The USA is the brain of the whole world, which produces weapons and super technologies that no one else has. All unnecessary production is transferred to China, Malaysia, the Philippines and others, away from the beautiful beaches of the USA. The USA is the first in everything: in space, in microelectronics, in weapons, microbiology, genetics, etc. But let's look at this list in 2016? The USA is not a leader in almost all of the above areas; outsourced production quickly became local, mastered and developed by its own side. In the USA, they could not create a creative economy without the working class, a farmer who milked goats for 40 years could not become a highly qualified programmer, and an assembly mechanic who for 30 years tightened the nut on the wheel of an automobile plant for some reason became a very bad microbiologist. As a result, the United States received an increasing standard of living and at the same time a shrinking economy due to reduced production. Every year in the United States the number of people receiving unemployment benefits and other social benefits increased, and at the same time the US federal budget deficit increased. How the United States compensated for the budget deficit is clear to everyone - with a printing press. In those distant 90s, namely at the end of the 90s, the United States was confident that everything would settle down very quickly, but it did not. As a result, if we analyze the financial situation in the United States today, it will be bad for everyone, for example those same 19.5 trillion. The dollars that the United States owes to the Fed are a drop in the ocean, because the debts of states and corporations are not taken into account. And the debts are huge and exceed the government's debts many times over. Such debts, or rather obligations, should have long ago led to a sharp collapse of the American currency.

Now let’s return to the topic of our conversation - what will happen if the dollar suddenly collapses today?

As you know, many financial transactions in the world take place in US dollars, almost all currencies of the world are pegged to the dollar and the dollar in this situation acts as a modern gold standard. Thus, in the event of a dollar collapse, all goods involved in international financial transactions will depreciate. Oil, gas, metals, food, fees for using trade routes, taxes and more will be reset to zero. What then will become the equivalent of gold (dollar)? Now imagine all kinds of billionaires, Arab sheikhs, whose vaults (not safes) are filled to capacity with dollars and dollar-based securities. What do you think, China, whose gold and foreign exchange reserves at the beginning of the year amounted to 3.3 trillion. Dollars will be very happy if he is suddenly informed that dollars have fallen 100 times in price overnight. This will mean that everything that the Chinese sold to the Americans they sold for 1% of the cost. Against this background, it becomes clear why Russia is introducing mutual settlements in national currencies around the world and relying on gold and precious metals. In the event of a global gamble, and there is no other way to call it, you need to have as little greenbacks and as many real assets as possible on your hands. Until this happened, and in the article Russia's Golden Gambit. Why does Putin need thousands of tons of gold? It is written in detail when this nix can be put into action. However, it is worth understanding that most dollar holders will never give up the dollar, because most of their savings are stored in it, and the United States, in turn, will never allow holders of its securities to get rid of them. Thus, a collapse can only occur for two reasons. The first reason is war or the possibility of it starting. If China, India and Russia begin to wave a club in front of the US, then many US citizens may lose faith in the power of their master and quickly begin to throw away dollars for next to nothing, trying to get at least something. The second reason is the slow ousting of the United States from spheres of influence. But until Russia and Co. have rebuilt the world economy, there is practically no possibility of a collapse of the dollar and the United States.