The Roman Empire Will Never Fall

…And Other Bad Predictions.

I’m torn…

Do I launch into today’s dispatch with:

• Three reasons the Soviet Union will never fall?
• Three reasons the Roman Empire will last forever?
• Three reasons Nazi Germany is destined to win the war?

I ask because of a story that popped up over the weekend. A collection of Morgan Stanley cheerleaders contends that there are three reasons the dollar cannot be dethroned as the world’s dominant currency.

We’ll come back to those misguided reasons in a moment.

But first…

Long-time Field Notes readers will very likely know where I stand on blind acceptance of the status quo.

Those who assume every tomorrow is going to be just like very today are the ones most likely to use the word “never”—and most likely to have egg on their face when “never” turns out to be “almost never.”

House prices in the US almost never go down… except when the lending industry is run by greedy SOBs who even offer mortgage applications to the family dog (true story).

Pandemics almost never happen… except when they do, and they shut down the global economy.

There is no never, really.

History is one long episode of proving that the status quo is forever changing.

History doesn’t really care about what has supposedly never happened. In fact, I think history kinda likes it in a sadistic way when society grows so comfortable with the status quo that humanity starts talking in terms of “never”…

There’s not a single currency in the world that has maintained its time atop the throne. Every single one that ruled the world at some point lost its perch and tumbled.

So I am mystified by the cheerleaders who disregard the span of history to insist that the dollar cannot be dethroned.

Of course the dollar can be dethroned, for any of a multitude of reasons that I regularly write about.

But let’s go through Morgan Stanley’s trio of reasons why King Dollar’s status is, apparently, permanent:

1. The Chinese yuan isn’t liquid enough to challenge the dollar.

That assumes this situation never changes. China could change the rules regarding the yuan and its global liquidity.

Since 2009, China has signed more than 40 currency swap agreements with countries all over the world, including the European Union. That is increasing the yuan’s liquidity and building up a comfort level with the currency among countries that have not traditionally held reserves in yuan.

Moreover, who says it has to be the Chinese yuan that dethrones the dollar, or at least takes several meaningful chinks out of King Dollar’s armor?

As I’ve been writing about for a long time, China and Russia, along with the other BRICS nations, are building a new, global-reserve hard currency. A lot of Western onlookers laugh at the idea that such a currency would/could replace the dollar.

But it doesn’t have to replace the dollar to cause severe pain.

Lots of countries are clamoring to join the BRICS currency, and lots of countries are increasingly trading amongst themselves in local currencies rather than using the dollar as the middleman.

As dollar demand declines (and even Treasury Secretary Janet Yellen is conceding that dollar use will continually decline), the US struggles to find buyers of its debt—and Uncle Sam must sell oodles and oodles of debt every year. The fewer buyers that exist, the higher interest rates for US Treasury paper, which pushes ever-higher the cost of running the country… which leads to fiscal crisis that turns into a monetary crisis as the dollar collapses.

2. Concerns over US debt levels won’t affect the dollar.

See also: “Concerns about a stupid little virus no one has ever heard of in China will not affect the US economy…”

Morgan Stanley’s cheerleaders can bleat all they want about US debt levels not raising concerns, but the stark reality is a wee bit different.

US Treasury auctions in recent months have been attracting fewer buyers. Wall Street is actually a tad worried because a lack of buyers means, again, that Treasury yields have to rise to attract buyers… which, again, hits Uncle Sam’s finances.

Of course concerns about debt will ultimately impact the dollar. US debt levels are now in ever-expanding mode. They won’t start falling until a crisis erupts.

The US is selling $1 trillion in debt every 100 days. This implies that, at some point—if you play this out to its inevitable conclusion—US debt demands would consume all investible capital globally.

So of course US debt levels matter to the dollar, and buyers are clearly paying attention to it.

To say that they’re not means you’re either stupid or, more likely, being disingenuous to make a (dumb) point.

3. Crypto isn’t a viable alternative.

This last point from Morgan Stanley is actually true… but completely irrelevant.

No one who understands crypto says that crypto will replace the dollar. A blockchain dollar will replace the dollar. But bitcoin and Ethereum and the other cryptos won’t—and that’s not really their purpose.

Most legitimate cryptos like, say, Solana are chasing other opportunities that a blockchain dollar doesn’t serve. (You’ve seen me write about those here often.)

Bitcoin itself is, and will continue to be, a store-of-value to protect against the long-term degradation of the dollar. But no bitcoin proponents pretend that bitcoin is an alternative to the dollar in terms of daily spending.

So Morgan Stanley has built a strawman in order to make yet another (dumb) point.

I stand by my position that the dollar’s days as King of the Hill are numbered. That position served the world well for 80-plus years. But all reserve currencies have a sell-by date.

The dollar is approaching that.

Morgan Stanley can hope for the best. But just in case the status quo isn’t static (as Morgan Stanley assumes)… I recommend you prepare for change.