Inflation Fears: Double-Digit Spike Possible?

Yellen acknowledged that sanctions could jeopardize dollar hegemony, with countries frantically fleeing the dollar. This 8 trillion market may be the first to be hit, and what's more worrying is...

Recently, discussions on the dollar hegemony in Western countries have intensified, with even US Treasury Secretary Yellen admitting: "Sanctions might endanger dollar dominance." What if the dollar really no longer "dominates"? Peter St. Onge, a fellow scholar at the Mises Institute and an economic researcher at the Heritage Foundation, responded to this:

In the past few weeks, major powers have been fleeing the dollar, casting doubt on its long-term dominance in the world. Eight weeks ago, only sanctioned countries like Iran or Russia were trying to de-dollarize. Now, even Brazil, France, and Saudi Arabia, a key country that has sustained the "petrodollar" for decades, have joined the ranks.

If the dollar really loses its status as the global reserve currency, it would be disastrous for the US economy and the American people.

At the end of March, Saudi Arabia announced that it would price oil in yuan, and foreign media were worried about this rare situation, with some even fearing that hyperinflation would sweep the United States.

Since the 1940s, the dollar has been the undisputed global reserve currency. This means that as long as the United States prints a bunch of green paper money, it can exchange for various things produced around the world. In times of economic recession, it can also print money at will to stimulate the economy without worrying about hyperinflation, because the whole world will pay for it.

Now the question arises, what if foreigners suddenly don't want dollars anymore?

Perhaps it's because people start trading oil in yuan, or the Federal Reserve has lost its mind and caused too much inflation.

In short, as demand dries up, the dollar begins to depreciate, and foreigners start worrying about their life savings being eroded. They start selling dollars, just a little at first, but more and more as it accelerates.

At that time, the dollar will collapse, and the 70-year history of money printing by the Federal Reserve and Wall Street will backfire on the economy, causing double-digit inflation that lasts for many years.What are the stages of de-dollarization?

Firstly, foreigners do not need as many US dollars, which means that no one wants additional dollars, leading to the devaluation of the dollar.

This process usually starts slowly, but as the trend continues, the rate of devaluation accelerates because the first people to flee only lose a little, while the longer one holds on, the greater the loss.

As the dollar becomes increasingly worthless, who will bear the consequences? Of course, it's the Americans. This is the only country on Earth that is obliged to use dollars.

Americans have no choice; unless they exchange dollars for gold, Bitcoin, or physical assets, they will go down with the ship.

What will Americans face? The devaluation of the dollar will drive up the prices of all goods entering the United States, as well as the prices of any transactions on the world market, which means that the cheap raw materials and imported components that originally drove American factories and supported American consumers will become more expensive.

First to rise will be the prices of gasoline, heating fuel, and food.

Secondly, the high prices of commodities and imports will eventually have to be borne by consumers. The prices of automobiles, building materials such as steel or concrete, clothing, furniture, televisions, computers, and medical equipment will continue to rise.

This means that the days of being able to afford luxury goods are gone, and Americans will have to work for it.

Most importantly, capital will begin to flow out.If foreigners become concerned, they will not only sell off dollars but also assets denominated in dollars. Starting with the most liquid ones, including stocks and government bonds, selling these financial assets is certainly easier than selling factories in the United States.

Approximately 40% of U.S. stocks and one-third of corporate bonds are held by foreigners. If foreigners begin to flee, both stock and bond markets would plummet. This could potentially halve Americans' pensions and push corporate borrowing costs to unbelievable levels.

That's not all, one-third of U.S. government bonds are held by foreigners, amounting to over $8 trillion. If foreigners start selling these bonds, it would either cause the U.S. government's debt servicing costs to soar by hundreds of billions of dollars annually, or more likely, it would force the Federal Reserve to buy all the bonds sold by foreigners, injecting trillions of dollars into the economy, which would bring inflation back to double digits overnight.

There were many ways to prevent all this. However, considering the U.S. government's repeated performance of raising the debt ceiling, coupled with their obsession with sanctions, it makes foreigners shy away from the dollar.

And the U.S. government is not seriously considering how to correct this issue, despite the fact that losing the status of a reserve currency would deal a heavy blow to the U.S. economy and the American people.