Yale’s Roach Warns of a Coming Crash in the U.S. Dollar

let's look at a morning must read off

his important essay on the collapse of

the US dollar America's savings current

account problems are about to come into

play with a vengeance the rest of the

world is starting to look less bad a

weaker dollar it would boost US

competitiveness but only for a while not

withstanding the hubris of American

exceptionalism no leading nation has

ever devalue dits way to sustain

prosperity Stephen Roche could it be

that big of a dollar move where we move

from depreciation to a consideration of

devaluation welcome I mean the problem

with the US and it's saving current

account imbalances is that they were

already setting us up for a problem

before the pandemic hit the net national

savings rate which is the broadest

measure of domestic saving is the

savings of businesses households and the

government sector adjusted for

depreciation was at one point four

percent of national income in the first

quarter of 2020 and the average of 45

year average from 1960 to 2005 was 7 so

we were at the you know the lower end of

an acceptable bound and then you know we

have introduced this massive relief

package which is going to blow our

budget deficits higher than we've ever

seen and take debt to GDP ratios well

above those which were evident in the

end of World War two so I look at that

and I say ok with deficits up with debt

up with savings likely to go sharpen the

negative territory which is going to be

even worse than it was in during the

global financial crisis the current

account is probably going to exceed its

prior record of minus six point three

percent of GDP in 2005 and currencies

are designed to

cushion the blow of an exploding iron

account in the context of weak domestic

savings so I think a dollar decline is


what you're hearing here folks is

textbook Stephen Roche I mean this is

why the guy became acclaimed at Morgan

Stanley Steve and our audience may not

be able to articulate net national

savings but they know a free lunch when

they see it when do we actually pay for

this debt buildup well you know right

now of course nobody worries about

deficits and debt because interest rates

are close to zero and so the cost of

servicing that debt the interest

payments that the US Treasury has to

make are de minimis but you know the

question is Tom you know when we count

interest rates to stay at zero in

perpetuity and you know that comes back

to and you know things like inflation

and relative risk premia and you know in

a weaker dollar environment where the US

has also been backing away from its

commitment to globalization through all

of these very protectionists and

nationalistic policies of the current

administration the willingness of the

the world to fund the budget deficits of

the saving short US economy gets drawn

into question that has interest rate

implications so the idea that there's no

consequences for deficits and debt I

think is absolutely absurd near-term

there's no immediate debt service cost

but come on we can do a better way of

assessing long-term consequences of

looking at and looking at short-term

interest rate expenses over the next you

know a few quarters Stephen how

difficult also is it to understand the

impact that you know covered 19 and

others and frankly just foreign policy

has on global supply chains

and given what you've just said about

debt and supply chains are we going to

see a more deflationary pressure or do

you worry that 18 months from now we'll

talk about inflation in America no I

actually think the supply chain a

question is a very meaningful one

there's there's you know clearly evident

franciene in during this pandemic

concerns over supply chain security with

respect to medical supplies and even in

the case of the u.s. supply chain

security with respected domestic food

supplies to say nothing of the great

toilet paper syndrome but you know we we

believe and this is articulated by a

pathetic editorial written in the New

York Times several weeks ago by US Trade

Representative Robert light Heiser that

all we got to do is just you know move

from offshoring to reshoring bring the

jobs back home when America will be fine


well mr. Lyte Heiser who's a lawyer and

knows nothing about economics doesn't

realize is that with reshoring comes

moving production back to higher cost

domestic platforms which is inflationary

for the US and a functional equivalent

of a tax hike on American consumers

you know just push a button and in

supply chains and the research shows by

the way that not only the supply chain

is important in holding down global

inflation but they're very sticky they

take years and years to assemble and you

just don't transform them overnight