TL;DR: Sparked by two opinion columns from a notable trade economist, Bitcoiners have again seized on the macabre hope of a global economic meltdown to move ever-heavier bags. It’s getting tiresome to read and hear crypto enthusiasts jazzed like crazed Jehovah’s Witnesses at the specter of the US dollar tanking. They’re allowing their hopium and magical thinking about Bitcoin to cloud reasonable analysis, and yet more cringe continues to push away the soberly curious noob.
No, the US Dollar is Not About to Crash
The latest fad among Bitcoiners is to float arguments from American economist Stephen Roach. He’s a senior fellow at Yale University’s Jackson Institute for Global Affairs and a senior lecturer at its School of Management. He’s also former Chairman of Morgan Stanley Asia. His three decades at the banking giant were spent mostly as Chief Economist, “heading up a highly regarded team of economists around the world,” a Yale public bio lauds.
Mainstream financial news site Bloomberg picked up two of his columns last week, both of which offer insight into what Roach considers a weakness exposed by coronavirus and its aftermath economically. “Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness. The balance is shifting, and a crash in the dollar could well be in the offing,” he warned.
Roach further announced the US dollar’s six decades-long reign as the world’s reserve currency is “over.” Assumptions are changing about the US’s role in global affairs, and those extend to financial considerations as well. This is further compounded by the consumptive nature of the US domestic economy, underscored by a severe lack of savers. “Lacking in domestic saving, and wanting to invest and grow,” Roach explained, “the U.S. has taken great advantage of the dollar’s role as the world’s primary reserve currency and drawn heavily on surplus savings from abroad to square the circle,” leading to what Roach considers catastrophic deficits.
Though numbers at the moment look good (the dollar is up in the high single digits this quarter against its trading partners), “the coming collapse in saving points to a sharp widening of the current-account deficit,” Roach insisted, egged-on by policies of the Trump administration on trade and beyond (a veritable laundry list). He stresses a trinity of “key implications” in the “coming collapse” of the dollar: stagflation, widening US trade deficit, and no more low-interest debt bailouts from China due to Trump administration “decoupling” policies.
Countering Roach’s claims, economists and financial experts both disagreed with his appraisal of current matters as they relate to the dollar but also emphasized the so-what factor. “The counter-arguments were strong and highly political, basically boiling down to the so-called TINA defense – that when it comes to the dollar, ‘there is no alternative,’” Roach acknowledged of critics. I think they have a point, to be honest.
And while Roach disputes the TINA notion, I find it persuasive even if I appreciate his overall take on dollar supremacy. In other words, this is a queer twist on the god-of-the-gaps argument I can embrace. Whatever weaknesses the US dollar seems to clearly have, literally nothing is there to best it (cue Bitcoiners) at the moment. Nevertheless, “My forecast that a 35% decline in the value of dollar could well be in the offing is couched in terms of the comparison between the U.S. and the currencies of a broad basket of America’s trading partners,” he continued.
Sure You Want to Pin Your Hopes on Morgan Stanley Genius?
Roach goes on to concede that for the US dollar to make such a splash, both China and the European Union would have to offer viable answers currency-wise, something neither appears capable at the moment for a variety of macroeconomic reasons. And nearly all of what Roach is pointing to in a dollar free-fall has to do with politics and not mathematical precision. He is no fan of Trumpian protectionism (remember, Roach made his name on Asia analysis and what’s known as “globalism”), and that bias weighs heavily in all of his calculations — the US dollar is over because other countries dislike Orange Man.
The irony here is I land in Roach’s emotional target audience: no fan of Trumponomics, view globalism as a net positive, and for sure believe the dollar’s best days are behind it. What I won’t do is go a step further and conclude all this means the US dollar is surely dead soon and that Bitcoin somehow stands to benefit just around the corner. That’s stupid. There is too much vested, tangled, institutional self-interest wrapped up in the dollar for it to fail near term (Roach’s guess is vague, but believes the year 2021 will yield something like what he’s predicting). And a 35% drop might not mean all that much if the rest of the world is tanking harder — to say nothing of cryptocurrency’s notorious inability to scale and languishing adoption metrics.
Furthermore, Bitcoiners believe Roach when it’s convenient and ignore him or worse when it’s not. His three decades at Morgan Stanley included presiding over missing the greatest economic downturn in world history to that point, 2008. He and his bank were so awful at forecasting what was to come, Morgan Stanley earned the dubious distinction of having borrowed the most of any bank during the bailout to save their sorry asses. A Federal Reserve study found Morgan Stanley borrowed $107 billion from US taxpayers, a cool $7 billion more than its nearest rival. The dude is a glorified, propped up welfare queen.
Lastly, Bitcoiners reveled at this Roach line for some reason, “Although cryptocurrencies and gold should benefit from dollar weakness, these markets are too small to absorb major adjustments in world foreign-exchange markets where daily turnover runs around $6.6 trillion.” He’s pretty clearly dismissing both, but whatever. Roach holds exactly no hope for Bitcoin, by the way, and he stated so flatly in 2017 at the height of the price run-up. He called Bitcoin a “dangerous speculative bubble by any shadow or stretch of the imagination” and a “toxic concept for investors” that has a “lack of intrinsic underlying economic value to the concept.” Bitcoiners, meet your new influencer. Now can we get back to building peer-to-peer electronic cash, please, and stop with all the nonsense?
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