The collapse of hegemony! Yale economist predicts a 35% crash in the US dollar, with the Euro set to take over its dominant position.

Morgan Stanley's former Chief Economist for Asia, in his latest article, discusses the fiscal breakthrough in the Eurozone and boldly predicts that the Euro, as the world's most popular mainstream currency, may soar, while the downward pressure on the US dollar will intensify further due to policy errors by the US government.

The Rise of Europe, the Decline of America

According to Stephen S. Roach, former Asia Chief Economist at Morgan Stanley and senior fellow at Yale University, in his recent article on the Project Syndicate platform,the latest article, Stephen S. Roach pointed out that the timing is ripe for the collapse of the U.S. dollar hegemony due to the worsening macroeconomic conditions in the United States, the government's abandonment of its global and domestic leadership, and the EU's approval of the latest relief plan. The overvalued dollar is expected to experience a sharp decline.

On July 21, the Eurozone passed a relief plan called "Next Generation EU," in which the EU will raise 750 billion euros in debt, with repayment starting in 2028 and extending over 30 years. The funds for repayment will come from new taxes, or in EU terms, "own resources." Stephen S. Roach pointed out that the relief plan proposed by the EU will have a profound impact on the current "overvaluation of the dollar" and "undervaluation of the euro."

In 2012, the Eurozone faced an economic crisis due to the sovereign debt crisis, with the Eurozone's 17 countries accumulating debts of about 8 trillion euros, of which 5 countries needed to repay 500 billion euros in the first quarter of the following year. At that time, European Central Bank President Mario Draghi vowed to "do whatever it takes" to defend the euro and prevent it from crisis. While this commitment solidified the ECB's reputation as the unwavering guardian of a single currency, it did not address the more critical issue of "transactions involving pan-European fiscal transfer mechanisms at the cost of national sovereignty." However, the "Next Generation EU" relief plan has achieved this, as Stephen S. Roach stated:

"Now, the headquarters of the European Monetary Union finally has the complete three prerequisites: a common currency, a central bank, and a reliable commitment to unified fiscal policy."

On the other hand, although the relief plan proposed by the EU still has some flaws in detail, the most important aspect is that the "Next Generation EU" relief plan will receive crucial support based on the issuance of pan-European sovereign bonds on a large scale. Stephen S. Roach pointed out that ultimately, Europe will become an endorser of a new risk-free asset, and so far, the only known asset of this kind in the world is "U.S. Treasury bonds."

Predicted 35% Plunge

The fiscal breakthrough in the Eurozone has brought about a significant turning point in the "overvaluation of the dollar" and "undervaluation of the euro." Despite a significant increase in June and early July, the actual value of the Euro Index is still 14% lower than its peak in October 2009, while the U.S. dollar, despite recent weakening in the past few weeks, is still 29% higher than its low point in July 2011. Stephen S. Roach pointed out that based on the current foreign exchange trends, market events seem to be moving in the expected direction, but this is just the beginning of a long-term adjustment between the world's two major currencies, and this is also the basis for his previous prediction of a 35% plunge in the dollar against other major currencies in the next 1 to 2 years.

On the other hand, Stephen S. Roach also observed that the U.S. personal savings rate dropped from 32% in April to 23% in May, while the federal government's budget deficit has exploded, reaching $863 billion in June alone, nearly the deficit for the entire year of 2019 ($984 billion). However, the U.S. has not stopped there and even plans to implement another multi-trillion-dollar