By Sean Kelly
Now that the market performance numbers are all in for 2020, we want to loop back around to the subject of the US dollar once again, especially to take another look at the urgent alarm sounded by Stephen Roach and if the US Dollar is losing value?
That is because his warning is like a siren screaming for people to head for the shelter of gold and silver!
But first, here is the way 2020 ended up. Even with a correction along the way, gold climbed almost 25 percent over the 12 months. Silver roared ahead for a gain of 48 percent. That’s about three times the gains of US stocks.
It was a different story for the US dollar index. It fell 6.8 percent in 2020.
But that may be only the beginning of the dollar’s woes!
Professor Roach is a former Fed official, and Morgan Stanley chief economist. He is currently a senior fellow at Yale University. We have written about his concerns about the US dollar several times. See Ready for the 2021 Dollar Crash?, and It’s Not Just the Smart Money Moving to Gold! Now It’s the Big Money, Too!
Roach is forecasting a crash in the US dollar by the end of this year. In an October piece in The Financial Times, Roach wrote, “A crash in the dollar is likely and it could fall by as much as 35 per cent by the end of 2021.”
In a June appearance on CNBC, Roach declared that the dollar was going to fall “very, very sharply.”
If few were paying attention to his warning then, more are now. Here is a chart of the US Dollar Index since he made that pronouncement:
Those who are interested in technical analysis will note that the dollar has broken down below its long-term trendline, the 200-day moving average shown in red, as well as the short-term 50-day moving average seen in blue.
The dollar index actually understates the dollar’s weakness, since it is a measure of the dollar against other currencies that are engaged in massive money-printing and currency devaluation of their own. All of the currencies against which the index compares the dollar are also losing purchasing power.
If Professor Roach is right – and it should be noted that he correctly predicted the bursting of the housing bubble – the dollar still has a long way to fall.
One simply can’t overstate how drastically that will affect our economy and the well-being of the American people. Its impact will be much more destructive than the housing bust and mortgage meltdown.
The Federal Reserve estimated that the popping of the housing bubble cost as many as 10 million Americans their homes. Nine million jobs disappeared. More than a quarter of American’s net worth vanished. More than $2 trillion in retirement assets were lost.
But the impact of a 35 percent drop in the value of the dollar will be bigger. Much bigger.
“The national savings rate is probably going to go deeper into negative territory than it has ever done for the United States or any leading economy in economic history,” said Roach.
The bottom line according to Roach: “US living standards are about to be squeezed as never before!” That is one of the reasons why gold and silver entered the New Year with a bang!
We hope our friends and readers will take this warning seriously and protect their wealth and retirements with gold and silver.
Before the dollar’s woes get worse.