Death of the Dollar: Economic Collapse Certain

The Fed admits its policies are losing potency, and its efforts now require continual government support as massive as the support provided by the Fed. I maintain that Fed success at propping up stocks now also requires continued belief in a fantasy narrative about a V-shaped economic recovery from the Coronacrisisi.

We saw all of that come into play today when the market plunged because of bad news about the pandemic’s spread and a move in the US away from reopening as well as news of a possible cap on the next government stimulus bill at a mere trillion dollars.

The V-shaped economic recovery narrative certainly isn’t going to hold — not even by the Fed’s most optimistic imagination. The Fed, as I’ve reported, has said its most optimistic scenario sees full recovery taking a minimum of two full years.

That’s far from a “V” when the full crash of stocks and business shutdowns took only 2-3 months to hit their lowest points. In less than two months, the market started rising; and, in less than three, the economy reopened for business. So, a minimum of two years on the recovery side to get back to where we were is one heck of lazy “V.” It’s more like a backslash with a long trailing slowly rising line.

If that’s the Fed’s most optimistic scenario, what happens if all of that fails? To me, that possibility finally brings into the foreground the long-bandied talk about death of the dollar. Until now, I’ve not seen that as a matter of immediate concern. Someday far down the line, of course it would happen; but now we have to consider the possibilities it could very realistically happen within a year or two.

The only thing that gives the dollar value is trust that the Fed can manage it; and, if the Fed’s efforts start failing and its money printing keeps rising while the economy keeps sinking, that trust will deteriorate fairly quickly.

I’ll betcha a dollar

Actually, I’ll bet you THE dollar starts to experience some serious trouble, and that will be huge for the world but worse for the US.

Forty percent of the world’s total central bank reserves are held in US dollars; so many nations take a hit if the dollar devalues. Until recently, 85% of foreign exchanges were done in US dollars. And about 40% of all global debt is held in US dollars.

Many have used those facts to argue the dollar cannot die. Too much depends on it. However, that also means too much is depending on something other nations increasingly despise and would like to break away from.

Constant weaponization of the dollar via sanctions gives many nations that hold a lot of dollars reason to stop doing so. Cuba, Iran, North Korea, Russia, Syria and Venezuela have all been hit by dollar sanction bombs, and all would welcome the dollar’s demise.

It was only a few years ago that I wrote about how Russia was divesting itself from US dollars, and I predicted it would continue to do so. Many people didn’t see that happening back then. Now it is a fait accompli. Russia still holds some dollars, but it is down to simply the operating level it needs for some of its trade.

Some nations like China, Russia and Iran, have already made a break away from the petrodollar, trading oil in yuan, via the Shanghai oil exchange, instead. China would like to supplant the US economically, so it will certainly seek the dollar’s demise via its own currency if it is able, but it has stiff competition.

The EU would like to promote the euro to that role, and the EU is being hit by US trade wars that give it less reason to hold dollars for use in exchanges on foreign trade, especially now that all trade is also down due to COVID-19.

Nations still hold to the dollar because it is needed for trade with the world’s largest economy. That is decreasingly the case due to the Trump Trade Wars. So, we have sanctions causing some nations to want to ditch the dollar at the same time lack of trade is causing many nations to simply have less need for holding dollars.

If nations do less trade with the US, they also will use dollars less in trade with each other, as that was largely an exchange convenience because they knew they could always use the stable dollars they got from other nations as part of their larger settlements for trades with the US.

In terms of holding dollars as a way of saving their sovereign treasure, they hold the dollar, largely in US bonds, because it remains the best horse in the glue factory. That is where the Fed’s money printing to the moon and beyond puts the dollar at risk of losing one more major reason for holding it.

The Federal government’s massively increased addiction to debt spending will also start to make US bonds look less secure as that debt has to now be perpetually monetized by the Federal Reserve — a situation likely to grow worse as spending needs continue doing the Coronacrisis and as other sovereign creditors start to back away for all the reasons just given

Still, the dollar has weathered Fed money printing and government debt spending at levels we thought were problematic before; and it is not as if other nations have any better options out there, but some are coming.

We can now add competing central bank digital currencies, since China is coming out with one this year, as discussed in previous Patron Posts and many other nations are working on CBDCs. And, then, we have the fairly recent competition from cryptocurrencies.

By dribs and drabs the dollar goes down

While we can only speculate about the internal plans of other nations, there are some things we do know about the dollar’s troubles.

The whole COVID-19 shutdown with its collateral decrease in oil consumption turns down dollar use in all trade, including oil, which leads some currency traders to speculate as follows:

The dollar’s dominance will slowly melt away over the coming year on weakening global demand and a sombre U.S. economic outlook, according to a Reuters poll of currency forecasters whose views depend on there being no second coronavirus shock….

Caught between bets in favour of riskier investments, weak U.S. economic prospects as well as an easing in the thirst for dollars after the Federal Reserve flooded markets with liquidity, the greenback fell nearly 1.0% last month. It was its worst monthly performance since December….

That suggests the greenback may be at a crucial crossroad as more currency strategists have turned bearish.

Reuters

And that, they say, is if the Coronacrisis is already resolved, which I think is clearly not the case.

“Worst since December” isn’t too bad, but there may be more in store if the dollar haters decide to seize the day. For those wanting to end dollar dominance, now is an easier time to get out than other times when dollars were demanded for trade.

One prominent Yale economist says the dollar is about to plunge rapidly. It is not that one thing will take it down, but that there are so many things taking it down together. Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman, says,

The era of the U.S. buck may be coming to an end and is forecasting a 35% decline soon in the U.S. currency against its major rivals, citing increases in the nation’s deficit and dwindling savings…. “The dollar is going to fall very, very sharply,” he told the business network.

MarketWatch

He’s looking at the internal problems the dollar faces, not just at how other nations want to do away with the dollar. These are organic problems that he doesn’t believe the dollar can overcome, though he does see an assault from other nations as a certainty as well:

The rise of China and the decoupling of the U.S. from its trade partners is setting the stage for a dramatic weakening of the U.S. currency in the next few years that is likely to end the supremacy of the monetary unit as the world’s reserve currency.

Regardless of how much other nations want to diminish the dollar, Roach’s main argument is based on the Coronacrisis:

The economist said that the U.S. economy is already “stressed” by the impact of the COVID-19 pandemic, and suggested that the recession that has gripped the U.S. in February amid the public health crisis will only amplify the dollar’s woes.

The rest of the world, he says, is beginning to doubt that “American exceptionalism” will hold out against COVID-19. The world sees America appears to be doing a much poorer job of managing the disease than other nations, many of which have it firmly under control.

Whether that is actually the case or not is irrelevant. It is the appearance of the situation in headlines that gives the world pause toward banking on the dollar because, if the disease goes out of control, America’s already gargantuan annual deficit in dealing with its own economic calamity will also spin out of control. (In my view, the response is already beyond control.)

Roach said that the U.S.’s fiscal deficit, as the government expends trillions of dollars, in an effort to mitigate the harm from COVID-19, may only make matters worse for bucks…. Roach … says that growing deficits will eventually change … perception and deliver a gut punch to the greenback.

Perception is everything because it undermines trust, and trust is everything when it comes to the value of money.

The Fed is clearly losing it

While the Coronacrisis reduces trade, it could also have the opposite effect on the dollar, pushing the dollar higher in value as a flight to the last living horse in the glue factory ensues. So, that is a countervailing force in the argument to be weighed against the rest of what I have to say.

However, consider the degree to which the Fed already appears to be losing control in addition to the broad anti-dollar sentiment outlined above:

Sven Henrich warns,

The Fed losing control over the asset bubble is now the biggest risk to the economy.

Northman Trader

But he also says that losing control of the everything bubble the Fed has created is one off the biggest risks to the Fed (this is an additional risk to losing control over the Coronacrisis recovery):

The secret is out, the Fed is busted:…. Everything is so distorted that the very tenants [sic.] of capitalism are crumbling…. Tim Seymour acknowledged as much last night: Capitalism is dead…. One can’t help but wonder if we are approaching a moment of singularity:… When central bank intervention no longer works to boost asset prices.

Henrich is not arguing against capitalism. He’s arguing that the Fed’s interventions have effectively killed capitalism in the US. It no longer actually exists in the US. Henrich sees the Fed as …

ever more ready to intervene at an ever more frantic pace, fearful of any downside in markets.

It is, in other words, slave to the market bubbles it has created. This is the point I’ve been repeating: the Fed is now at the place where, because of this recession, it has more plates to spin than it can possibly keep up with, and you can see that its control is no longer as sure.

And here’s the real deal for destroying the dollar. All value of the dollar is vested in trust in its creator — the Fed. So no one outside of the Fed has to take the dollar down. All that has to happen for the dollar to collapse is for the Fed to lose trust. That, as I’ve maintained for years on this site, is the sole bases for the value of its money.”

Henrich goes on to note how ineffective the Fed has become:

For all the bullish narratives out there nobody can hide from a very self evident fact: Markets peaked on June 8th.

Outside of the Nasdaq, all other major indices have been struggling unsuccessfully for a month just to get back to their June peak, which was still short of their ultimate peak in February. Stocks have shown no gains since February. Henrich goes on with his charts to show something insidious at play in the markets, which I’ll leave to you to follow if you want, as this article is about the dollar and the Fed. The point is, Henrich agrees with what I’ve been saying: the Fed can’t get it up anymore.

Even if the Fed’s goal were simply to slow its money printing in order not to inflate the stock asset bubble any further, that strategy will still crash the market. If stocks don’t keep rising, money exits stocks. In a recession, dividends usually get crushed as companies have no profits to share. So, without stock price gains, money flees stocks.

Why stay in high-risk assets if they stop rising when you could be safer in bonds and safer still in cash and safer still in gold? If the Fed even maintains a minimal gain in stocks, it will lose investors if the gain is not enough. If it maintains a gain of any size, it’s adding to a bubble in stocks because its pricing them in the opposite direction from where the economy is heading. So, the Fed is trapped into continuing to expand the asset bubble (if it even can) or seeing the bubble deflate.

(It does have one final solutions, and that is to buy stocks directly in any amount necessary to set their prices just as it might attempt yield-curve control in bonds; but that is subject for another article.)

As COVID-19 kills the Fed’s ability to raise markets and proves again the Fed never could save an economy that is going into recession and as everyone watches it over-rev its money presses (computers), trying to crank out enough money to get things back up, it will lose trust.

The present recession (depression really) is far greater than what the Fed can imagine. It is, as I’ve always maintained would become the case with the next recession, going to become greater than the Great Recession. (I would argue it is really just the anti-resurrection of the Great Recession; i.e., a collapse back into it at a deeper level.) It is the mess we plowed straight ahead (or kicked down the road) until we can’t push it (or kick it) any further. The Coronacrisis brings it all down on our heads at once.

As the government continues to spend into excessive debt now that it has already pushed its debt mountain-high in trying to stimulate our way out of the previous crisis, versus correcting its wrongs, trust in the dollar is at risk, too, amplifying the government’s crisis financing struggles.

We’ve only started down the new crisis financing path and are pretending a big push this year will put an end to the crisis.

It won’t.

It’s only a matter of time now before the world starts to see that the Fed is clearly in over its head and so is the US government. Loan forbearance cannot end as we pretend it soon will because too many people are not going back to work and will default on their loans. That means bank bailout programs will have to continue via the Fed. Either we bail them out under forbearance because forbearance means they are not getting any revenue, or we bail them out under a situation of widespread mortgage foreclosures because foreclosures will be as bad or worse than they would have been during the Great Recession, and wholesale foreclosures mean the banks are not getting any revenue because they crash collateral value. Without bailouts and real-estate stimulus and deregulation that allowed banks not to foreclose and to delay pricing collateral value down to market, the last housing crisis would have gone much deeper.

Or we let the banks fail, as we should have last time around, and then deal with all of that.

No matter how you cut it, the problem is beyond what the Fed can manage, as it took ten years of Fed stimulus after the Great Recession began plus maintenance stimulus from the government in the amount of a trillion-dollar annual deficit to get us up to sustained GDP growth of a mere 2%! Now, we have all the original problems of that recession still in place that we didn’t resolve plus all the COVID-19-related problems and a government deficit of, at least, three-trillion dollars a year … and climbing.

As Henrich concludes:

Now desperately intervening in one form or another on every down day the Fed soon will run out things to do and buy and market participants having chased nothing but the Fed put have greatly aided and abetted this historic distortion…. Everything we’re seeing are vertical distortions that are non sustainable:…

Henrich, then gives several charts showing the Fed blasting its money engines off to the moon, but concludes that, with a Fed flight path that is:

worse than vertical, they are not changing reality on the ground.

That’s the bottom line. The Fed can still (with the government’s help and some assistance from the virus if its willing to go dormant) push the market up. However, nothing the Fed does can end the recession — the reality on the ground where people are out of work, international trade is on the floor, and where domestic commerce is way down and staying down under partial reopenings that are fading fast.

The Fed creating cheap credit is not enticing consumers to go out and buy more. It doesn’t make up for all the closed summer events where nothing is bought that would have been bought. It does not replace jobs. It can only put cushions out in all the places where we are going to land, but its cushions usually perpetuate the problems by creating moral hazard or even immoral enticement.

The problems were already there

Stephen Roach has also talked about how the problems we face now are worsened by the flaws left in place from before or actually made worse by the Fed’s recovery program after the Great Recession:

A sudden stop [of the economy, such as we just had] often exposes deep-rooted structural problems that can impair economic recovery. It can also spark abrupt asset-price movements in response to the unmasking of long-simmering imbalances….

Such is the case for the pandemic-stricken US economy. The aggressive fiscal response to the COVID-19 shock is not without major consequences…. The COVID-19 crisis is an especially tough blow for a country that has long been operating on a razor-thin margin of subpar saving…. No need to worry, goes the conventional excuse – America never saves.

Think again. The net national saving rate averaged 7% over the 45-year period from 1960 to 2005. And during the 1960s, long recognized as the strongest period of productivity-led US economic growth in the post-World War II era, the net saving rate actually averaged 11.5%.

Lacking in saving and wanting to invest and grow, the US typically borrows surplus saving from abroad, and runs chronic current-account deficits in order to attract the foreign capital. Thanks to the US dollar’s “exorbitant privilege” as the world’s dominant reserve currency, this borrowing is normally funded on extremely attractive terms, largely absent any interest-rate or exchange-rate concessions that might otherwise be needed to compensate foreign investors for risk.

That was then. In COVID time, there is no conventional wisdom.

The US Congress has moved with uncharacteristic speed to provide relief amid a record-setting economic free-fall….

As a result, the net domestic saving rate should be pushed deep into negative territory. This has happened only once before: during and immediately after the 2008-09 global financial crisis, when net national saving averaged -1.8% of national income from the second quarter of 2008 to the second quarter of 2010….

In the COVID-19 era, the net national saving rate could well plunge as low as -5% to -10% over the next 2-3 years….

Project Syndicate

Why would America save when the Fed’s recovery plan for the last decade absolutely crushed interest??? The Fed clearly does not want America to save. It wants America to increase debt in order to remain debt slaves to banks. It was always clear that the FedMed plan was killing all incentive for saving. You cannot even effectively save for retirement via your 401K unless you put the money at risk in stocks (where the Fed clearly wants it to go).

The Fed has done everything it can to force the money of individuals out of savings and into stocks. So, of course, Americans have no cushion of their own to land on. If savings accounts paid 5-1/4% interest, compounded quarterly, as mine did when I was a kid, people would be saving.

Roach notes that unprecedented pressure on domestic saving is likely to magnify America’s need for surplus foreign capital, but that is going to happen at a time when nations increasingly want to divest from the dollar and increasingly have less reason to trust that the Fed can handle all of this and increasing have less need of dollars.

So far, however, that’s not a problem. Treasury auctions have gone superbly well, and foreign demand has jumped while yields have plummeted:

Roach believes the Coronacrisis will rapidly change all of that.

America is leading the charge into protectionism, deglobalization, and decoupling. Its share of world foreign-exchange reserves has fallen from a little over 70% in 2000 to a little less than 60% today. Its COVID-19 containment has been an abysmal failure.

We’ve seen in the past week how Europe has cut off travel from the US. The US has diminished trade with Europe and China for trade-war reasons, and now COVID-19 has diminished trade with everyone for everything everywhere.

Against this background, especially when compared with other major economies, it seems reasonable to conclude that hyperextended saving and current-account imbalances will finally have actionable consequences for the dollar and/or US interest rates.

I don’t know if Roach is right about how quickly this will come about, given the countervailing force I just mentioned of being the last refuge, but certainly the numerous forces laid out above (as listed in summary form below), which are now fully in play, present a perilous picture for the US dollar:

• US protectionism,
• COVID-induced trade reduction,
• rising sanctions that weaponize the US dollar,
• increased antipathy against US dollar hegemony,
• the rise of competing central bank digital currencies,
• diminished need for petrodollars as oil consumption falls,
• a rapidly ballooning government debt, making US bonds look less stable for foreign investment in dollars,
• diminished belief in the Fed’s ability to navigate all of this,
• and finally, the possible collapse of the asset bubbles the Fed, itself, created to try to restore us via a “wealth effect” from the Great Recession.

That’s more strain than the dollar has ever seen.

So, if the dollar’s demise is ever going to happen, the time is now, and that’s why this is the first time in years of writing this blog, I’ve decided to bring up the possibility of destruction of the dollar.

“In a COVID era everything unfolds at warp speed,” Roach told MarketWatch on Monday. He pointed to the contraction of the U.S. economy from an employment rate that was hovering around a 50-year low at around 3.5% near the start of 2020 to one that shows some 49 million people unemployed since the pandemic took hold in March. He also noted the rapid and unprecedented fiscal and monetary response that has ballooned the Federal Reserve’s balance sheet to more than $7.2 trillion from $4 trillion at the start of the year as examples of the celerity at which the currency market could change.

The world has changed forever

We live in a time of change greater than we saw on 9/11 and greater by far than the housing-market collapse that started in 2007, which continued to collapse all the way through 2011. It will be greater than that because that kind of collapse will also become a part of the present economic crisis, but is merely a secondary component now. Those times brought lasting transformative change throughout the world. So will this one.

These are times that finally play into the scenarios predicted for years by those who have prophesied the dollar’s demise. I prefer to save my predictions of calamity for the times when they will actually happen and not keep making the same prediction every year until it does happen.

Where I have talked about things like the eventual end of the Fed’s Great Recovery program in ruin, it’s a prediction of a certain eventual outcome, but not a prediction I’ve made for every year. I did predict it would happen in late 2015 or 2016 when the Fed ended QE and was wrong (not at all about everything that would end in ruin, but about when). I was wrong because I thought ending QE would also mean they would soon start rewinding it, and they didn’t. Once the Fed announced its schedule for rewinding QE, I was certain of when the ruination would ensue; so I revised the time to come in phases with a stock market breakdown in 2018 and a recession to begin mid-2019, but repeatedly said the recession, which would bring all the destruction, would not become evident to most people until early 2020.

In all that time, I’ve never once talked about the dollar’s demise, but the time to talk about that is here because COVID-19 is accelerating everything. In the video below, Dmitry Orlov, who has predicted of the dollar’s imminent demise and US collapse since 2006, says it is almost over. His time to be right has finally arrived, too. In his case, I think he kept predicting it as being imminent until it happened, but he’ll be right now and is right about why it will happen.

The US, he claims, is facing its 1990’s Soviet-era collapse when the ruble crashed. The video notes about eight minutes in that the recession actually began to appear in the summer of 2019, as I said it would, and says the COVID-19 bug arrived in perfect time to accelerate that collapse and to create something to blame it all on because the acceleration would make COVID-19 look like the sole cause.

Orlov sees that as too convenient to be coincidence. Maybe he’s right. I don’t think the virus was engineered for this purpose, and I’m not sure he does either; but I find it convenient that the most extreme response to a virus in the history of the world is happening right as the economy was already starting to go down. (“Response” is the operative word here.) I’m not so sure the response isn’t engineered to take opportunistic advantage of the virus. I think that is more the path Orlov is presenting, too, because we have never in the history of the world responded to any virus by shutting down the economies of every nation.

That, of course, is often how these things go. Years of profligacy and planning on faulty bases starts to crumble, and then crisis picks exactly that time to strike and takes you down when you were poised to fall. That is, at least, how the greatest imperial declines often happened. Longstanding recklessness and extravagance, caused by and feeding deep-rooted corruption, cause overall malaise in the broader economy that doesn’t profit from the greed. Then suddenly the empire is hit by a great crisis, and the colossus comes down. Usually, it takes a lot more than one crisis.

That is how Rome fell by dribs and drabs and occasionally huge hits at its weak points. It wasn’t built in a day, and it didn’t fall in a day. Thus, Edward Gibbon wrote his multi-volume tome on The History of the Decline and Fall of the Roman Empire. (You can buy the full set at that link or get the much abridged Penguin classic version here if you’re interested in seeing how great empires collapse.) The collapse of the dollar ultimately leads to the end of US imperialism, which was built on dollar hegemony, in that it becomes much harder to fund a vast military.)

In the following video, Orlov makes the point that, with so much money printing going on and so little general international trade, diminished oil trade, and so little actual production and declining services in the US and so much foreign distaste for the dollar (all the same things mentioned above), there is a lot more money to spend with a lot fewer things to spend it on and that typically leads to hyperinflation.

A bit of prudent caution about the voices of perpetual collapse

Orlov is a little too anti-US in his thinking when he claims states will create their own treaties with other nations. They cannot. Apparently, he’s not familiar with the US constitution. Their doing so would create a full-on hot civil war against the US military, as it would be a major breach of the constitution, which gives all international treaty powers exclusively to the federal government and ALL interstate trade regulation to the federal government. States cannot even create their own interstate arrangements without the federal government’s blessing. It has been that way from day one.

Orlav also assumes the only thing holding the states together is economic dependency on the federal government’s largesse and the dollar. At one time that was naive misunderstanding of how much Americans value being Americans. He WAS deeply wrong about that as recently as 2006 when he began writing about this, but I’m not so sure any more. The US has changed and no longer cherishes the same common heritage the vast majority once held dear, which bonded us.

Extreme immigration has allowed in millions of people who do not at all value the common US culture or its history. In fact, liberals have practically taught there is no common culture and taught people to despise any value in our history and even to move away from a common language (the core of culture).

As a regular reader here, you know I have no problem criticizing Republicans or Trump, but I’m an equal-opportunity critic, and I have watched for years as liberals endlessly taught people to focus on our differences, and on the ways we incurred each other and not on our commonality. Conservatives, by constantly putting forward tax plans that make the rich richer more quickly and by unbridling capitalism from regulation while socializing the losses of capitalists have exacerbated all of that.

So, Orlav is no longer as wrong about financial support from the federal government because of international benefits to the almighty dollar being the only thing holding states together as he once was; but he’s still not altogether right about it either. We’ve lost a lot of cohesion along those lines, but there is still some there, though it is fracturing quickly now.

The US isn’t going to blow away like dust, as he claims, any more than Rome did or Great Britain did. It’s not how major empires collapse; but the years ahead do look like years of the long decline and eventual fall of America, and I think the biggest assurance of that is the fact that we appear to have lost the social fabric that once enabled us to pull together in emergencies.

We appear more likely to suffer an increase of social fracturing and dissent in a nation where congress can no longer even work together on compromises and where people do not accurately see the many things that are causing our economic demise (the baked-in problems I keep writing about).

Peter Schiff is another who has said the dollar is in imminent danger of sudden total collapse every year for twenty years or more. Each year he predicts something on the order of gold will soar to $5,000 an ounce, so buy more of it quickly. I think this year or next could very well be the year when the broken clock is right about the broken dollar. (He’s always been right about why the dollar will collapse, but has pushed the message of imminent collapse every year in order, it would appear, to sell gold.)

Expect him to claim that it happened just when he warned you it would. He actually always warned you it would happen soon, always being wise enough not to put a date on it. I’ve waited to warn you until I think the risk is real. Now is finally the time to be vigilant for that possibility. I tell you that as someone who has no gold to sell and will still warn you about the risks of gold.

Thus, I will also note that it is happening during a time of extreme deflationary pressures, so we may see something more like the stagflation of the 70s, at least, at first, rather than rampant Schiff-style hyperinflation (like Zimbabwe or Venezuela or the Weimar Republic).

I no longer rule out hyperinflation as I have for past years where I was certain there was no risk of it in those years; but the dollar still has the advantage of being the least-leaky ship in the fleet of global currencies, and a recession of this magnitude creates an enormous downdraft of normally deflationary forces (as happened in the Great Depression).

So, with a lot more money chasing a lot less product and service supply, stagflation may be more likely than an immediate currency collapse. The dollar has a lot of supports that are failing, but they probably will not all go at once.

Fed trust, for example, has long reigned supreme, so I wouldn’t count on it immediately collapsing into dust. It’ll go down by fairly quick erosion, albeit quick on a geologic timeframe (the glacial Fed timeframe). In that case, inflation, if it happens, will happen more in some pricing than others. Housing prices, for example will crater, helping to hold overall CPI down. Fuel prices may stay low, too, as the Coronacrisis diminishes the demand for fuel.

International support for the dollar has long reigned supreme, and nations will move away from the dollar on their own schedule based on their own needs and particularly their own concerns about collapsing the value of their own sovereign treasure that remains in dollars presently.

Still, there could be a run on selling those bonds if nations see other nations running for the dollar exits just as there can be runs on banks. In that case, it will be a strain for the Fed to soak those bonds up quickly enough to avoid an interest spike for the US government without losing trust in its ability to manage the problem, which could compound the rush.

Be vigilant. Things may change as quickly as Roach says; but there are a lot of variable moving parts, so things may not go just as anyone thinks. This unusual time is accelerating everything.

Gold is probably a good bet now (as well as other precious metals), if you can get it and get it at a fair price. Just bear in mind central banks continue to own enough gold to manipulate its price; and the federal government seized total control of the price during the Great Depression and of possession and could easily do so again. We saw how suddenly you couldn’t buy gold when this recession hit, and the reasons are not all that transparent as to whether some rigging was involved in that.

So, don’t assume total safety by putting all your eggs in the gold (or PM) basket either.

Evidence of longterm corona cash damage begins to appear

I’ll conclude with a followup note to what I’ve written recently in these Patron Posts and in regular posts, which is that the Coronacrisis will further the move toward a cashless society. Now we can see ways in which it is doing that and damaging US currency. One major grocery chain has posted the following signs on its stores:

They’re probably all in the fountains. A national coin shortage? @meijer? 🤔🤨🤷🏼‍♀️ pic.twitter.com/rzKe68WBqw

— Silvia A. Mansoor (@SilviaMansoor) June 30, 2020

Apparently, no one wanted to work at the various national mints during the contamination phase. That left the US short on coinage during the reopening phase. It is also leaving people less interested in handling filthy lucre, so some establishments have banned currency and gone to strictly electronic money handling.