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Investors this past March reminded me of those San Fermín festival attendees in Pamplona, Spain, running for their lives from gigantic, furious male cattle...
In the span of two months, the United States dollar went from the most coveted asset in the world... to one of the most dangerous to hold in bulk.
Over the weekend, Goldman Sachs Group Inc. (NYSE: GS) released a note revealing that it is betting against the U.S. dollar. The investment bank anticipates even more investors will rush into the stock market as the U.S. economy reopens.
It's not just the prospect of the flood back into equities that could lead to a drop in the U.S. dollar. The U.S. Federal Reserve and Congress' massive effort to provide liquidity to the economy has dramatically expanded the central bank's balance sheet and sent the U.S. debt levels to sky-high levels. The Fed effectively created $2.3 trillion out of thin air in April in an effort to spur loans to cities and small- and medium-sized businesses.
By the end of this crisis, the Fed's balance sheet could easily top $10 trillion.
In addition, growing unrest across America has fueled criticism of the United States and uncertainty about its standing in the world. The threat of another wave of coronavirus and increasing unrest across America could reduce the dollar's status as the world's reserve currency.
There are other threats to the dollar that continue to creep in, just under the radar.
China's recent security law regarding Hong Kong's status could upend the peg between the Hong Kong dollar and the U.S. dollar. Meanwhile, countries across the Middle East are again reconsidering their peg to the U.S. dollar following the recent price collapse of oil. Their peg to the dollar effectively forces these nations to price crude oil in dollars and drives demand for the U.S. currency. "De-pegging" from the dollar would reduce that demand. Both of these events would be significant and will likely trend as potential concerns in the years ahead.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.