Well before the coronavirus pandemic, world economists expected a bleak US economy, and during the last ten months of the Covid-19 outbreak, the US financial system looks even worse. Economists and analysts say the main concern is that the US dollar is faltering into the unknown, as a large number of prominent individuals believe the dollar will fall significantly in 2021. In addition, noted economist Stephen Roach believes there is a more than 50% chance that the US dollar could collapse at the end of next year.
The currency index in US dollar (DXY) continued to spiral down as investors searched for safer assets to hedge against a turbulent economy. Over the past week, numerous economists and financial analysts have predicted that the US dollar will weaken even more next year than in 2020.
The past year is the US currency trade weighted index of DXY has fallen to lows not seen since May 2018. Meanwhile, as the US dollar tumbled to new lows this summer, Goldman Sachs warned that the USD is at risk of losing its dominant power as a world reserve currency.
2021 could be the year Americans begin to discover how much all this free government really costs. The bill for the bailouts and incentives will come in the form of a collapse in the value of savings and incomes as the cost of living moves up a long-awaited explosive step.
During the last month of 2020, a large number of analysts still indicated that they were bearish about the dollar’s performance in 2021. On December 2, the economist and gold bug, Peter Schiff, explained that he expects more drop in the dollar next year.
“The US dollar is now trading at its lowest level against the Swiss franc since January 2015,” said Schiff tweeted. “This is a harbinger of things to come. The franc leads the way, but other currencies will soon follow. 2021 may be the worst year on record for the US dollar, at least until 2022, ”the economist added.
Normally it is just bitcoiners and gold bugs predicting that the dollar is on its last leg, but many other well-known people in the financial world are also skeptical of the USD. Stephen Roach, the former chairman of Morgan Stanley Asia, recently told CNBC that the “seemingly crazy idea” of a US dollar collapse could become a reality.
Roach emphasized during his interview that his prediction was based on historical evidence and past economic cycles. The economist strongly believes that there is a 50% chance that the dollar could collapse by the end of next year.
“The US current account deficit, the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration in the second quarter,” said Roach. “The so-called net national savings rate, which is the sum of the savings of individuals, companies and the government sector, also registered a record decline in the second quarter, returning to negative territory for the first time since the global financial crisis.”
Furthermore, Reuters hosted its annual Investment Outlook Summit this week, and many of the financial managers at the event also did not have much confidence in the future of the US currency. “The markets are right, I think the dollar will get cheaper from here,” Rick Rieder, Blackrock’s chief investment officer for fixed income, told the top participants. This follows Blackrock CEO Larry Fink’s recent statements when he said the crypto assets bitcoin “Can grow into a global market.”
A number of other executives who attended the Reuters Investment Outlook summit made similar statements about the US currency. “The re-emerging growth gap between the rest of the world and the US should push the dollar down,” said David Kelly, chief global strategist at JPMorgan Asset Management said during the event.
In fact, the summit was filled with individuals and organizations expecting the USD to weaken at least next year. Financial institution BNP Paribas explained to the press that it expects the dollar to soften more and Citi also predicts a 20% decline in the USD in 2021. Furthermore, investment bankers believe it will be difficult for other central banks to defend the US Federal. Reserve to ‘outdo’.
For this reason, Peter Fitzgerald, chief investment officer for multi-asset and macro at Aviva Investors, says he is long on foreign currencies and “emerging market currencies against the dollar.”
“It will be very difficult for any other central bank to effectively beat the Fed,” Fitzgerald noted at the summit. Meanwhile, a few other analysts, such as Jim Leaviss, president of M&G Investments, believe foreign central banking institutions are likely to weaken their fiat currencies first.
During his recent meeting, economist Stephen Roach went on to explain that the US may be seeing some more economic aftershocks from the new Covid-19 infections and the flu season. “We’ve gotten data confirming both the savings and current account dynamics in a much more dramatic way than I was looking for,” said Roach.
The former chief economist at Morgan Stanley predicted the final depreciation of the US dollar last summer, and has vigorously pushed for the currency to fall an additional 35%.
“As we enter the flu season with the new infection rates up again, with an unacceptably high mortality, the risk of an aftershock is not something to be ignored,” Roach concluded. “That is a difficult combination. And I think history suggests this is no time, contrary to what the frothy markets are doing, to bet this is different. “
What do you think of all the economists and analysts who are bearish about the future of the US dollar? Do you think the USD faces are collapsing? Let us know what you think about this topic in the comments below.
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