WASHINGTON DC, The United States of America – In a few days, the US currency fell sharply. Although financiers consider such fluctuations acceptable, they warn that by the end of 2019 the dollar will fall into a downward trajectory and for many years.
US investor Ray Dalio believes the dollar will collapse by 30% because of the “triple US deficit”, which will eventually lead to the inevitable: the dollar will lose its global reserve currency status.
Since the end of 2017, the Federal Reserve System has tightened monetary policy by raising interest rates, and only in that year they have repeated that process three times. This has put companies in a difficult situation. US President Donald Trump has criticized the regulator’s strategy to end stimulus measures, saying the Fed has become a threat to the country’s economy.
The real estate market has already responded to the Fed’s actions with easing, with housing prices surpassing the levels that preceded the 2008 crisis.
Years of depression
For analysts at leading global financial services company JPMorgan Chase, the decline will begin at the end of next year and the US currency will not be able to reverse the downtrend as it will last for several years. Thus, the cooling of the US economy will lead to a pause in the cycle of raising Fed rates in the second half of 2019.
Analyst Morgan Gabriela Santos told Blooomberg that we will see the dollar fall for many years and that in the second half of next year, if the Fed really pauses, the economy will slow down and the rest of the world stabilizes.
According to billionaire Ray Dalio, the dollar will collapse due to a further increase in the “triple deficit”: the budget deficit, the trade deficit and the current account.
This triple US financial shortage will not appeal to foreign buyers of Treasury bonds, which will lead to an explosive increase in profitability and a drastic 30% drop in the dollar, thereby losing the status as the world’s reserve currency. The investor claims that this scenario would be the “worst nightmare” for the United States.
“The role of the dollar will be reduced, the holders of US debt will suffer. We will see how the other currencies will come on the scene,” he said.
Gold, not dollars
The power of modern financial technology is destroying the “net effects” that created the natural currency monopoly, says Berry economist Barry Eichengreen, an American economist and professor at the University of California, Berkeley, who also believes dollar days are numbered.
Gold will be one of the most reliable instruments to cover exchange rate and political risks, according to Dalio, because if there is a collapse of the dollar system (originated mainly by debt), the precious metal will definitely not depreciate. Being used as a payment instrument in world trade, gold reduces dependence on any currency.
It is for this reason that Russia increasingly prefers gold bars to dollars, with its reserves of precious metal hit a record high, while the share of Treasury bonds in the Russian Central Bank’s international reserves almost disappeared.