- The US dollar will collapse by the end of 2021, and the economy can expect to face a more than 50% chance of a double-dip recession, economist Stephen Roach said on CNBC.
- Historically, the US has seen economic output rise briefly and fall back lower in 8 of the past 11 business cycle recoveries, Roach said.
- Grim data from the second-quarter this year cannot be dismissed, because “the current account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration,” he said.
- Roach last predicted a crash in the dollar index June, when it was trading around 96.0 points. He said it would collapse 35% against other major currencies within the next year or two.
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The “seemingly crazed idea” that the US dollar will collapse against other major currencies in the post-pandemic global economy is not so crazy anymore, economist Stephen Roach told CNBC on Wednesday.
Roach, who is a former chairman of Morgan Stanley Asia, also sees more than a 50% probability of a double-dip recession in the United States.
He based that prediction on historical evidence, pointing to how there have been double-dips in 8 of the last 11 business cycle recoveries. “It’s certainly something that happens more often than not,” he said on CNBC’s “Trading Nation.”
Roach last predicted a dollar crash in June, saying it would collapse 35% against other major currencies within the next couple of years. At the time, the dollar index was trading around 96.0. Currently, the index is trading around 94.41.
He now expects the collapse to happen by the end of 2021, but did not say by how much.
“We’ve got data that’s confirmed both the saving and current account dynamic in a much more dramatic fashion than even I was looking for,” he said.
Explaining his outlook, Roach pointed to dire data from the second-quarter this year.
“The current account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration in the second quarter,” he said.
“The so-called net-national savings rate, which is the sum of savings of individuals, businesses and the government sector, also recorded a record decline in the second quarter going back into negative territory for the first time since the global financial crisis.”
Lingering vulnerability and the aftermath of the initial decline are two factors driving the dollar’s ominous future, he pointed out.
“Lacking in saving and wanting to grow, we run these current account deficits to borrow surplus saving, and that always pushes the currencies lower,” Roach said. “The dollar is not immune to that time honored adjustment.”
Additionally, a combination of new infections and unacceptable mortality rates can’t easily be dismissed when assessing the risks of an aftershock.
“As we head into flu season with the new infection rates moving back up again with mortality unacceptably high, the risk of an aftershock is not something you can dismiss,” he said. “The record of history suggests that this is not a time unlike what the frothy markets are doing to bet that this is different.”