The idea that a basket of foreign currencies or "BRIC+" will replace the dollar is absolutely not going to happen. If the dollar goes down it takes the entire world with it. Nobody is insulated from the risk of a dedollarization.
It's which came first the chicken or egg?
The fall of the dollar will happen because anyone(everyone) with significant wealth will divest from the dollar CAUSING the de-dollarization. That's the point of the indicators.
Don’t forget that you also can invest in negative dollar by taking loans. Then, the reduction of purchasing power does actually benefit you.
So, whoever has significant wealth will do exactly this and take out loans to purchase productive assets and then, later on, pay back much less because the dollar lost value in the mean time.
This works out as long as the interest rate is lower then the actual annual loss in purchasing power.
Shorting is a bad idea unless you can accurately predict the timing of the crash. Otherwise it'd likely your gains will go down to -5000% before they suddenly rocket up to 99%. And you'll close your position out of fear, when it's about -1000%.
Pretty much this. There is no “spare part” currency to swap in for the dollar and preserve the modern economy, here. The end of dollarization means the end of post-WW2 economic policy wholesale.
So what we’ll end up with is a post-WW2 supply chain but in a world where every currency dynamically floats, even the dollar. It’ll be a decade of price shocks, trade wars, and likely conflict as everyone vies to define the next era of economic power, until a smattering of core currencies (likely the Yuan, Euro, and Dollar) emerge on top for each respective region.
I’m somewhat confident in the Euro until India or Africa grows to be a potential competitor. Whether they can achieve a similar risk profile remains to be seen of course.
Russia is a non starter, and China is unlikely to make the political change necessary to be a reserve currency.
If you think the US has a debt problem, the Eurozone is much worse. At least America has economic growth along with debt growth. The EU has slightly less debt but zero economic growth and almost zero population growth (and negative organic population growth).
Africa's GDP is tiny and will not a serious contender for any sort of reserve currency status for many decades. I can't imagine a wave of automation will do anything positive for most of Africa.
Growth is over globally except India and Africa due to demographics [1]. Developed countries and unions will compete for the last of the world’s young, prime age workers over the next century. Financial stability will be a function of who manages this situation to the best of their circumstances. Can you attract and retain these workers and leverage that for economic success? If so, that’s where investment will flow and capital will remain invested. My thesis is Europe is best positioned to succeed in the near term, based on the above.
Sibling comment mentions Europe needs the US for energy; Canada has known fossil gas reserves of ~200 years and LNG export capabilities, and Europe is scheduled to end Russian fossil gas consumption in 2027 [2]. The world is deploying 1GW of solar every 15 hours; like the rest of the world, everyone will arrive at energy independence/sovereignty eventually through cheap renewables (solar primarily, but also wind) and battery storage (LFP and sodium most likely, as of this comment) exported by China to the world. China is also selling inexpensive EVs to as many global consumers as they can find (while internal sales of battery electric and hybrids is already at ~50% this year). This leads me to believe the future of US oil and gas is an internal petrostate similar to Russia, not an energy exporter of relevance far into the future.
Having billions of low-skill "prime age workers" is not a good thing in the AI era. Africa's population surge is a liability as much as it is a benefit, especially considering they already have to import a large portion of their food supplies. Africa is 20% of world population but just 2% of world GDP... Maybe they will turn into China at some point, but I wouldn't bet on it yet.
> Africa's population surge is a liability as much as it is a benefit, especially considering they already have to import a large portion of their food supplies.
They also need to import phones, dishwashers, and cars. But how many cars do you really use? How many phones?
Africa's population growth is projected to drive steady demand for consumer products, while the West and parts of Asia are expected to see a decline.
They have abundant natural resources, and they’re likely to become the cheapest labor force after countries like Vietnam and Thailand see rising wages and living standards.
We’re already seeing this in China, where wage growth is pushing some manufacturing to neighboring, lower cost countries.
Demand is ultimately limited by the number of people. You can produce as many goods as you want using AI powered factories but without demand, they’ll just end up in the garbage.
AI era remains to be proven to not be bullshit. If it turns on to be something of value and not pets.com and webvan 2.0, prime age workers should be provided training and hiring pipelines for jobs AI cannot do: healthcare, construction, infrastructure, housing, agriculture scaling, etc. Knowledge/white collar jobs are most at risk with LLMs, not work building society up and operating it in the physical world.
If you think an LLM is a thinking machine, I don’t know what to tell you. They are great at predicting tokens, but there is no evidence they are thinking in the human sense. They rely on patterns and probabilities, not understanding. Powerful search engines, certainly, but there is much work ahead to see how hard the limits being bumped up against are.
> As someone that has sold a bunch of LLM enabled software over the past 6 months, I don’t really buy the AI capex turning into huge productivity gains. Everything to date are just chatbots with RAG and API calls. None of them are going to do my laundry or file my taxes.
Without getting hung up on the definition of the word "think", the fact that anyone can feed an LLM a couple of bullet points and generate a pile of convincing sounding marketing copy, is worth something if you're to someone. We can disagree on exactly how much and to whom, but if you're not willing to see that as fact then there's no common ground to base a conversation on.
It's under appreciated that some jobs being trivially done by LLMs doesn't mean that all jobs are trivially done by LLMs.
Low-value-add marketing copy, for example, being automated changes... what? Now LLM-generated copy is the new minimal-cost baseline, and everyone adapts to the new normal.
The real killer feature will be autonomous business planning, but we're a long way from there.
Even Europe has huge parts of their economy backed by the USA.
NATO funding, drug R&D and subsidized pricing, even sovereign wealth funds are invested in the USA. Their only energy option outside of the USA is Russia.
Postwar Europe as we know it does not exist without the USA.
Stable governance and a business friendly enough environment (SAP is the most valuable company in Europe currently, for example; business can be done there). Even with populism and right wing extremes popping up there, I’m more confident in Europe staying on the rails vs the US (as it relates to currency stability).
I don't understand why anyone would believe that. The euro does exist since only a quarter of a century and is already in very serious dire straits. It's the worse ever conceived currency (conceived by clueless bureaucrats): it makes no sense at all to have a common currency for countries with different fiscal policies. Nearly all the countries that have the euro are more indebted than the US (GDP wise). One country with the euro already partially defaulted on its public debt (Greece).
i would say this: if thanos snapped his fingers and made dollars disappear, the euro would be the best choice among a bunch of shitty choices for world reserve currency, but still trailing behind "no reserve currency at all".
China is an exporting and manufacturing powerhouse. Something that is only accelerating. Don't get me wrong, china has a whole bunch of issues. but currently political instability kneecaping economic growth is not one of them.
Also China knows that unemployment means the end of their control. So they will do anything and everything to keep people gainfully employed. the USA less so, and we'll see if that works out for them.
