No sooner had I asked if neo-conservatism might crash with the dollar, than Morgan Stanley’s chief economist predicts armageddon (I think he means apocalypse), his opposite number at First Securities offers some ‘home truths’. And in the real world Russia quietly exchanges dollars for euro.
The word everyone – apart from Morgan Stanley behind closed doors – is afraid to use is ‘crash’. But that’s what everyone’s hinting at. Nobody has an interest in the collapse of the US dollar as every central bank has huge dollar reserves the value of which it wants to retain. But alongside that is the knowledge that the dollar is going down anyway, which means it’s time to sell. But the only way the dollar will keep any value is if someone buys and nobody will. So dollars are being sold on the quiet, in a way that can’t last and soon someone will shout that the emperor has no clothes, bringing down the whole house of cards.
Traditionally, this means hyperinflation. It would also see the end of dollar hegemony. It sounds bizarre, but dollar hegemony has meant the US can simply print dollars (whose value’s based on trust alone) to finance its trade. Print too many and they become worthless, but that’s the only constraint. In effect, the world’s willingness to buy and trade in dollars subsidises the US economy. Without dollar hegemony Americans will have to pay in full for oil and other imports in another currency; euro’s the only contender.
‘Get out while you can,’ warns the Economist. ‘America has abused the dollar’s reserve-currency role so egregiously that its finances now look like those of a banana republic.’ The FT’s Martin Wolf quotes Wilde’s Importance of Being Earnest; ‘The chapter on the fall of the rupee you may omit. It is somewhat too sensational’ as he dismisses the myths supporting the US economy.
The end is nigh… honest. And I’m predicting it will come on a Monday (maybe this Monday) in the next three months because crashes tend to happen on Mondays; traders have had a weekend to think, then they sneakily try to offload first thing.