Michael Wilson, a Morgan Stanley chief U.S. equity strategist, is warning that the rise in the dollar could lead to an economic crisis. Wilson accurately predicted that US stocks would decline in 2022 and said,
“If there was ever a time to be on the lookout for something to break, this would be it.”
Stocks have fallen 23% so far this year, while the US Dollar Index has surged 19% higher, creating an untenable situation for stocks. The Epoch Times reports that the “year has left nothing safe with both stocks and bonds hit hard,” costing investors over 7.6 trillion in losses amid concerns that the losses could likely increase in the coming year.
“This year has left nothing safe with both stocks and bonds hit hard.”
— The Epoch Times (@EpochTimes) September 27, 2022
The surge in the dollar has also caused problems for poorer countries, struggling to pay back debt as their currencies are devalued against the dollar.
Outside the United States, the surge in the dollar is adding to inflation problems and also piling pressure on lesser developed countries who have borrowed heavily in dollars but now struggle to pay the money back as their own currencies crater. pic.twitter.com/gL34cHQwsI
— J.M. Hamilton (@jmhamiltonblog) September 19, 2022
According to Epoch Times, Chief Investment Officer Eric Reve is concerned. Traders have held long positions on the dollar for 62 weeks straight, worth $10.23 billion. Reve is concerned that amid a sell-off, we could see a steep decline in the valuation of the dollar,
“We could easily see a 10–15 percent move the other way in the dollar versus the euro or the yen,” he said.
Expectations that the Federal Reserve will continue raising interest rates have supported the rise in the dollar. The Fed has indicated that the best way to fight inflation is to hike rates, knowing it will cause more economic pain.