- Alasdair Macleod: The Crisis Goes Up A Gear — The Beginning of The end for The Fed’s Dollar
by Alasdair Macleod, https://www.goldmoney.com/
Dollar-denominated financial markets appeared to suffer a dramatic change on or about the 23 March. This article examines the possibility that it marks the beginning of the end for the Fed’s dollar.
At this stage of an evolving economic and financial crisis, such thoughts are necessarily speculative. But an imminent banking crisis is now a near certainty, with most global systemically important banks in a weaker position than at the time of the Lehman crisis. US markets appear oblivious to this risk, though the ratings of G-SIBs in other jurisdictions do reflect specific banking risks rather than a systemic one at this stage.
A banking collapse will be a game-changer for financial markets, and we should then worry that the Fed has bound the dollar’s future to their fortunes. The dollar could fail completely by the end of this year. Against that possibility a reset might be implemented, perhaps by reintroducing the greenback, which is not the same as the Fed’s dollar. Any reset is likely to fail unless the US Government desists from inflationary financing, which requires a radically changed mindset, even harder to imagine in a presidential election year.
The most important mistake economists and financial watchers make is to assume events and prices tomorrow are simply projections of those of today. It is the basis of all economic and financial modelling. Yet despite the hard lessons of experience economic forecasters persist with their misleading models.
Nowhere is the failure of linear projection from the past more important than in the lifeblood common to everything. While knowing that state-issued currencies change in their utility over time, almost no one expects their demise, other perhaps at some point in the far distant future. But what if this generally linear expectation is as wrong as all other forecasting models? What if the response to the current economic crisis is a more rapid depreciation of currencies? And what happens if they die altogether? And what are the consequences for the ordinary person?