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comment by kleinbl00
kleinbl00  ·  390 days ago  ·  link  ·    ·  parent  ·  post: A post-dollar world is coming

because I'm feeling saucy

    This month, as the dollar surged to levels last seen nearly 20 years ago, analysts invoked the old Tina (there is no alternative) argument to predict more gains ahead for the mighty greenback.

Meanwhile the chair of Rockefeller International will bring up the Canadian and Australian dollar with a straight face.

    What happened two decades ago suggests the dollar is closer to peaking than rallying further.

And what's happening right now suggests the exact opposite. Dunno if Ruchir Sharma has been paying attention to (gestures vaguely in the direction of the world) all that.

    Even as US stocks fell in the dotcom bust, the dollar continued rising, before entering a decline that started in 2002 and lasted six years.

It's almost as if market forces and geopolitics were disconnected.

    A similar turning point may be near. And this time, the US currency’s decline could last even longer.

Or... not. More actual evidence for "not." Substantially less speculation tho

    Adjusted for inflation or not, the value of the dollar against other major currencies is now 20 per cent above its long-term trend, and above the peak reached in 2001. Since the 1970s, the typical upswing in a dollar cycle has lasted about seven years; the current upswing is in its 11th year.

Haha we tried to make this point with recessions until COVID hit and everyone acknowledged their models were broken. Hey Ruchir - you know your model is broken, right?

    When a current account deficit runs persistently above 5 per cent of gross domestic product, it is a reliable signal of financial trouble to come.

For those who don't speak Financial Pundit, this is a dogwhistle short-hand for "Reinhardt & Rogoff."

For those who don't speak Financial Pundit, yes, quoting R&R still happens, still happens with dreary regularity, and still happens in order to buttress points laid lie by an undergraduate with Excel. The problem is, R&R makes the case for Chicago School economics so cleanly, so concisely that the people who read it just assume that the point is still valid even though all the data indicates the opposite of R&R's hypotheses.

You really can ignore the rest of this. The useful thing about authors quoting R&R is you know that their economic thinking gelled prior to the 2008 financial crisis and has been untroubled by anything since.

    Nations see their currencies weaken when the rest of the world no longer trusts that they can pay their bills.

mmmyeah but the argument for "there is no alternative" is "what the fuck are you going to do about it?" That's kind of the whole schtick for American hegemony - it's not "their debt" it's "our debt."

    Finally, investors tend to move away from the dollar when the US economy is slowing relative to the rest of the world

Did that meself, for the exact period the author quotes. Made a killing. It's worth noting that "Investors" matter a whole lot less than "nation-states" in this sort of thing.

    In recent years, the US has been growing significantly faster than the median rate for other developed economies, but it is poised to grow slower than its peers in coming years.

There's some shit in Europe that is kinda clouding the forecast. Also some shit in the South China Sea. But go off, I guess.

    Since the 15th century, the last five global empires have issued the world’s reserve currency — the one most often used by other countries — for 94 years on average.

Thiiiiiiis is slippery. Even Wallerstein pointed out that World Systems Theory falls apart when you have no frontier. "The world" is also doing a lot of work here - the Ming would be surprised to find out they had been transacting in Escudos the whole time.

    The dollar has been bolstered by the weaknesses of its rivals. The euro has been repeatedly undermined by financial crises, while the renminbi is heavily managed by an authoritarian regime. Nonetheless, alternatives are gaining ground.

Look - in 1971, the USA said "fuck you, we're no longer honoring our debts." The world's reaction can best be summed up as "...well shit." It is left as an exercise for the student to determine if American world standing was stronger in 1971 than in 2022.

    Beyond the Big Four currencies — of the US, Europe, Japan and the UK — lies the category of “other currencies” that includes the Canadian and Australian dollar, the Swiss franc and the renminbi. They now account for 10 per cent of global reserves, up from 2 per cent in 2001.

Let's do the math here - the author lists four currencies that together are ten percent of global reserves. If I were to pull four countries out of my ass? It wouldn't be those four.

buuuut if the author were to say the Euro or the Yen he'd get laughed at. The renminbi? Mostly what One Belt One Road has taught the world is that not only do the Chinese not honor their debts, they make fun of you the whole time. Chinese influence? Oh shit the Solomon Islands won't let a coast guard cutter dock. Let's see what that situation looks like the next time they have a tropical storm, shall we? The Suisse Franc? That's a funny one as the Swiss national charter allows their natural bank to print money and buy tech stocks with it. They're literally a hedge fund with a cheat code. They're also... not known for their international gregariousness if you know what I mean.

    The dollar share of foreign exchange reserves is currently at 59 per cent — the lowest since 1995.

It's almost like buying forex with dollars is a winning trade at the moment.

    Digital currencies may look battered now, but they remain a long-run alternative as well.

Yeah but every country in the world except like El Salvador has come around to 'you pay your taxes in our sovereign currency, we could care less about the rest of it" because taxes are hegemony. It's that simple. Anyone who thinks otherwise doesn't understand geopolitics. Just look at Russia insisting gas has to be bought in Rubles in order to prop it up.

    Meanwhile, the impact of US sanctions on Russia is demonstrating how much influence the US wields over a dollar-driven world, inspiring many countries to speed up their search for options.

And that search... has landed on

    It’s possible that the next step is not towards a single reserve currency, but to currency blocs.

It's possible that monkeys could fly out of my butt

    South-east Asia’s largest economies are increasingly settling payments to one another directly, avoiding the dollar

Right - because they don't need a - say it with me - reserve currency. You use reserve currencies across frontiers or through contested exchanges, or where there is a third party necessary to the transaction (like global shipping firms).

    Malaysia and Singapore are among the countries making similar arrangements with China, which is also extending offers of renminbi support to nations in financial distress.

How's that workin' out

    Central banks from Asia to the Middle East are setting up bilateral currency swap lines, also with the intention of reducing dependence on the dollar.

And increasing their dependence on the Loonie for some reason?

    Today, as in the dotcom era, the dollar appears to be benefiting from its safe-haven status, with most of the world’s markets selling off. But investors are not rushing to buy US assets. They are reducing their risk everywhere and holding the resulting cash in dollars.

Today, as in every era since the Weimar Republic,

    This is not a vote of confidence in the US economy,


    and it is worth recalling that bullish analysts offered the same reason for buying tech stocks at their recent peak valuations: there is no alternative. That ended badly. Tina is never a viable investment strategy, especially not when the fundamentals are deteriorating.

I... can't even parse this. Nobody suggested buying tech stocks at their peak valuations. Everyone suggested they were going to eat shit, but "the market can be irrational for longer than you can be solvent." "TINA" is why people buy Amazon. How's that going?