Russian Dollar Dump Could Crash Financial

[theo]

Economist John Williams says if Russia sells its U.S. dollar holdings, it could trigger hyperinflation. Could it collapse the financial system? Williams contends, “Yes, it certainly has a potential to do that. Looking outside the United States, there is something over $16 trillion in cash, or near cash. That’s about the same size as our GDP. . . Nobody has wanted to hold the dollar for some time. The dollar, fundamentally, is weak. It couldn’t be weaker. All the major factors are against it. It’s just a matter of what would trigger the massive selling. Nobody wants to hold it. The Russians start selling, and you have China indicating a general alliance here in terms of what’s transpiring. If the rest of the world believes this is what’s going to happen, people who have been wanting to get out of the dollar for some time very easily could front-run the Russians. The scare is on. People will try to get out of it as rapidly as they can.

What would happen if there was massive dollar dumping globally? Williams says, “It would be disastrous for our markets. All those excess dollars coming in, with bonds being sold, interest rates would spike. The stock market would sell off and we’d see inflation. To prevent that and try and keep things stable, the Fed would tend to buy up those Treasuries. It would intervene wherever it could to stabilize the circumstance. It’s going to be very difficult, and it’s going to be very inflationary. Williams goes on to say, “You have to keep in mind, back in 2008, we had one of the greatest financial crises the United States had ever faced. The system was on the brink of collapse at that point in time. What the Fed and the federal government did was spend every penny they could, anything they could create or anything they could guarantee. They did everything they could possibly do to keep the system from crashing. They guaranteed all bank accounts. So, they saved the system, but now what they did has not borne fruit. We have not seen an economic recovery. We have not seen a return of health to the banking system. So, the system is very vulnerable; and if the Russians carry through with their threat, you have, indeed, the risk of it collapsing the system.”

http://usawatchdog.com/russian-dollar-d ... -williams/

This is an idle threat. If Russia dumps the dollar and it snowballs like the article theorized then all currencies would be vaporized, not just the dollar. China will exit the Dollar on its own terms, not Russia's. Although the Chinese are giving Putin moral support (mostly due to their own ambitions), I can't see them actually trusting Moscow. China and Russia will cooperate when it is convenient, but they've never been natural allies.

What is slightly more credible is Putin's threat to freeze U.S. and E.U. assets in response to sanctions, but even that would pretty much destroy Russia's already damaged reputation as an EM investment option.

Having said all of that, it is something worth monitoring.

Thoughts?

[currencydebasement]

I'm with you. Totally shallow, the guy doesn't say anything, borderline incoherent with his digressions to the financial crisis and Zimbabwe.

[johnbrickner]

This was the best thing said in the entire article. And this only at the very end: "the ‘Great Recession’ took place, and I’ll contend it never ended." The rest of the article was four "if"s; two "could"s; and four "would"s (give or take). All speculation except the above. Theo's thoughts are more credible. I think Williams is needing attention. Now having said all that, keeping an eye on dollar dumping is the right thing to do. I would think Aggressive Metal with his finger on the pulse of the currency exchange rates would be the first to give us a 'heads up'.