Heavy economy warns of dollar crisis: « Fantastic opportunity for Europe »

The United States is the world’s bank. A staggering proportion of all payments, loans and investments in the global economy soon or later turns on the US system.

Kenneth Rogoff, Harvard professor and one of the world’s most quoted macroeconomists, is similar to the dollar in the universal language of the economy. 90 percent of the world’s currency trading involves the US currency.

« The fact that the dollar is dominant, in the same sense as the English language is dominant globally, has many benefits for the United States, » he says.

Economically, it is About income in the US financial sector and lower interest rates for state, companies and households. In addition, the dominant dollar is closely related to US political and military power in the world.

But that power is not given.

– The dollar has been in a slow decline over the past ten years. An important factor is that China has a very strong driving force to break away from the dollar system. China knows it is a matter of time before the US uses the dollar to introduce aggressive sanctions against them.

At the same time, the threat to the dollar is not primarily based on.

It’s the rampant budget deficits And the growing US government debt that makes him now warn of a crisis in the US economy.

Already last year, the federal state paid more in interest than the entire US defense cost.

Since then, interest costs – and the central government debt – have continued to rise.

In connection with this spring’s many customs play from Donald Trump, a pattern also appeared that many have seen as ominous. The value of the dollar fell, while interest rates in the United States rose unexpectedly.

– I think it’s a notice of what’s going to happen. Interest rates will rise, and with the US high indebtedness, the state reaches a pain point. The risk is then that the state will hit back and trigger some form of economic crisis.

Kenneth Rogoff clearly wrote his New book « Our Dollar, Your Problem » (The title is a quote from Richard Nixon’s Finance Minister John Connally) just in connection with Donald Trump being elected for a new term in the White House.

He sees it as Trump’s politics now fast -forwards the course he warns of.

– Everyone knew Trump would introduce high customs. The great shock was how stupid and destructive he did it. I think it has done a lot of damage, despite the retreat.

The temperature in Trump’s trade war has been screwed down. Instead, the state budget is on the agenda, with a proposal that means large unfinanced tax cuts. So far, the proposals have not impressed the financial markets.

– My interpretation of the reactions is that the market sees that US government finances are not under control.

When it risks According to Kenneth Rogoff, to trigger a crisis, and exactly how it can seem, is not known.

– It is not put in rolling of pure mathematics. Typically, these are political problems combined with some unexpected shock, which I do not know what it is, he says, adding::

– We are in a period of higher interest rates, high debt and strong market fluctuations. It is a dangerous combination. In my book I made the assessment that we risk a crisis in the American economy within five to seven years, but now I think it will be faster than that.

If that crisis leads to the dollar losing more land as a global currency, what does it mean for Europe?

– It is a fantastic opportunity for Europe to expand the euro’s market share as a reserve currency. If you succeed, there are many small but valuable benefits, for example in the form of lower interest rates and that Europe becomes a more independent power geopolitical. I welcome that.

From Donald Trump and economists around him, sometimes the strong, globally dominant dollar is seen as a problem. Is there anything in it?

– I do not feel sympathy at all for the perception that it is a horrible burden to have the world’s reserve currency. There is a small grain of truth in that the status of the dollar has disadvantaged the manufacturing industry, but it is a small factor.

But now moves The world’s investors in small steps towards abolishing the dollar’s dominion. Kenneth Rogoff believes that the result is that the global economy gets several dominant currencies.

The euro is well located, he says, as does the Chinese Yuan. He also believes that cryptocurrencies can continue to increase its influence through the great black economy in the world.

– My analysis was even before the dollar would sink. Now Trump is accelerating that process, says Kenneth Rogoff.

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