Brent Johnson unpacks US dollar strength in 2020. What does the future hold for the US dollar over the next couple of years?
What is your prediction for the future of the US dollar?
For the next two to four years, the US will do pretty well relativ…
Brent Johnson unpacks US dollar strength in 2020. What does the future hold for the US dollar over the next couple of years?
What is your prediction for the future of the US dollar?
For the next two to four years, the US will do pretty well relative to other countries. It doesn't mean things are good but it means it's better than everywhere else. As capital flows into the US, the dollar will get stronger and US dollar asset prices will go up. US stocks will rise, real estate in certain places will do okay, but commercial real estate is worrisome.
How is dollar strength affected by the global market for US dollars?
There's the US domestic dollar market and there's the eurodollar market. Because money is loaned into existence, you need monetary velocity to be taking place or you need credit expansion to be taking place. The monetary system is a system that is designed to grow. If it starts to go in reverse the whole thing cracks and it crashes. Whenever we get into a recession, the Fed or the central bank has to come in and plug that hole. They're there to issue new dollar collateral to re-collateralize the system. The problem is that the big market outside the United States exists as well, and the Fed does not have any jurisdiction over it and doesn't have the ability to re-collateralize that system when it crashes. The market has gotten so big, but now it's contracting. New dollar loans aren't being made so the whole system is starting to crack. But the only person or the only institution in the world that can issue new dollar collateral is the Fed. So what they have had to do is open swap lines, which is basically a way to give a foreign central bank dollars so that that central bank can then re-collateralize the system with dollars. But the problem is extremely big. It's in the trillions.
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