Why is the us dollar dropping
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
inevitable
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
again
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
