I’ve written about my friend Dave before. He is a smart guy, but tends to have extreme views. Lately, he’s been pounding on me to accept his argument about the inevitability of a collapsing dollar. I’ve been listening to gloomy forecasts for 50 years and I’ve become somewhat skeptical of them. Remember Y2K? People went off the deep end and nothing sinister happened.
Dave insists that the recent announcement by the United Arab Emirates that they have stopped using dollars for oil transactions is earthshaking. He thinks that other producers will follow and that will reduce the dominance of the dollar in the world oil markets. In other words, say goodbye to the petrodollar. Dave argues that less demand for dollars will lead to a steep fall in the value of the dollar. Assets denominated in dollars will lose value. He says that’s the reason why central banks are buying gold rather than U.S. Treasuries as a reserve asset. When the glut of dollars held overseas returns to the U.S., inflation will rage. Dave thinks people should get out of dollars while they still can and buy gold while they can still get it. He believes the U.S. is in for severe economic punishment because of its monumental debt and huge deficits.
Could he be right? Perhaps. We should see in the year ahead if Dave’s forecasts have merit.