Oguz Erkan
Investor, Founder of Capitalist Letters
The US dollar faces devaluation risk as major holders doubt the US can pay its debt without debasing the currency. Yields have been rising, and the world's largest sovereign wealth fund, Norway's, plans deep cuts to its US Treasury holdings, signaling it sees no attractive real returns. Ray Dalio says the global monetary order is breaking down. x.comÂ
The US dollar should weaken as the bond market pushes back on US deficits. Ray Dalio warned that deficits above 3% of GDP would create a supply-demand problem in bonds, and nobody now wants 30-year Treasuries below 5%. Citadel Securities warns that the Treasury's expanded bond buybacks under Bessent amount to financial repression that could weaken the dollar and fuel inflation. Hard assets are the place to be instead. x.comÂ
The US dollar faces debasement because papering over the debt burden requires destroying its purchasing power to reduce debt-to-GDP. With no new buyer for US debt, bond rates will keep climbing: debt is $40 trillion versus $5 trillion in 2007, with a $2 trillion annual deficit and debt at 123% of GDP. Getting rates back to 2.5% would require a complete financial reset that destroys the dollar and inflates debt away; otherwise rates will climb to 6-9% in the short to medium term. x.com x.comÂ
The dollar's reserve role is eroding because, for the first time in twelve OMFIF surveys, more central banks plan to cut dollar holdings than add them. The 90 institutions, managing $10 trillion, cite political risk rather than a stronger rival. They are heading to gold, which 82% already hold and a net 30% plan to add, and to euros, yuan, pounds and kroner. The dollar is still 57% of global reserves, down from a 70% peak. x.comÂ
The US dollar is the key long against other currencies in a secular disinflationary era, with demographic decline worsened by years of QE and overly cheap money. More currencies should hit record lows against the dollar, with non-dollar bond markets breaking and financial assets repricing toward demographic decline. Japan is entering a demographic-collapse regime where the BoJ has no power left. Dollar/yen just hit a 40-year peak of 162.68, per FinancialJuice. x.comÂ
The US dollar looks set for a multi-year bear cycle because a multipolar world needs fewer dollars. Reserve managers are diversifying, trade settles in more currencies and central banks accumulate gold instead. Against an equally weighted basket, the dollar's half-century sequence of lower secular highs is topping again on its 7-to-10-year cycle. Every major commodity bull of the past century ran alongside a falling dollar, which could also bring a second inflation wave. x.comÂ
The US dollar is overvalued and weakening as Asian surplus countries stop recycling their surpluses into dollar reserves, an external drain. Without that recycling, both yields and the currency are in price discovery. Ken Rogoff concluded that Asia not recycling would mean a lower dollar against Asian surplus currencies and higher nominal rates, both now happening. Per @DrDavidKass, Ed Yardeni blames the global bond rout on the yen-carry unwind; the explanations are not mutually exclusive. x.com … Show more
The US dollar should strengthen over the long term as the US makes other countries reliant on its oil, a strategy that is working. The US is exporting more oil than it has in a long time. The bond move reflects rising energy prices, not a weak US economy, which is not actually that bad off. x.comÂ
The US dollar will be sacrificed to grow the economy, as Treasury Secretary Bessent says the only way out of debt is to grow out of it. With debt at 121%, policymakers see one path forward, inflation and GDP growth, which makes savers losers like never before and argues for holding savings in assets that hedge inflation. The dollar's destruction began in 1970 and won't stop anytime soon, though it is not expected to fall within our lifetime. x.com x.com x.comÂ
The dollar's longer-term prospects are very negative: 2008 showed the dollar-based system was built on quicksand, and 2026 showed the US has lost its leadership of the Western-oriented world. Both are very positive for gold. First, though, the dollar might rise on a flight to liquidity. x.com x.com x.comÂ
The US dollar looks more bullish than bearish because it is priced against other currencies that are hit harder by oil. Most countries' bond yields are rising, not just America's, and the US has the world's most dominant economy, which AI is accelerating relative to others. Still, trading currencies makes little sense when stocks are rising 25%+ a year. x.comÂ
The US dollar should weaken because the US government wants a weaker dollar to increase manufacturing competitiveness and relieve global stress from a strong dollar. x.comÂ
