Steve Eisman, the star investor portrayed by Steve Carell in “The Big Short,” slapped down talk of the dollar losing reserve currency status.
What happened: In a CNBC interview, Eisman dismissed the idea of the growing U.S. sovereign debt being a problem for the dollar: “The people who have been making this argument about U.S. debt have literally been making it for 30-40 years. [...] When you’re 40 years too early, have a little humility and keep your mouth shut,” he said.
Why it matters: The prospect of “de-dollarization,” the dollar losing its status as the world reserve currency, has been gathering steam due to talks of a “BRICS currency.” Its advocates see developments like Russia and Iran trading outside the SWIFT payment system as the first steps toward a dollar substitution.
Another popular argument is the $34 trillion U.S. national debt leading to an unmanageable financial crisis – the “boiling frog” scenario JPMorgan warns about. Those who question the strength of the dollar argue that the increasing debt burden could lead to a redirection of capital from U.S. national debt to other “safe haven” assets, such as gold or, potentially, a “BRICS currency.”
Eisman, who made his fortune betting against subprime mortgages during the subprime mortgage crisis, rebuked these arguments.
Read also: Why the Economy Will Remain Weak for Far Longer Than Anyone Is Admitting
Dollar Strength Discussions Are Here To Stay
Indeed, the dollar remains the dominant international reserve currency: 59% of foreign exchange reserves are in dollars. While that is a 25-year low, this share was as low as 50% in 1990 – a time when the United States was the sole geopolitical superpower.
Other analysts, such as Lyn Alden, have argued that average Americans have been getting the short end of the stick of the dollar as the world reserve currency:
Quantitatively, the benefits of being the longstanding world reserve currency haven't primarily flowed to the median American.
Instead, they primarily flowed to the corporations, the government, the military-industrial complex, and so on. pic.twitter.com/9xzqGm6Zpn
— Lyn Alden (@LynAldenContact) December 22, 2023
Even if de-dollarization is not on the cards any time soon, 2024 being an election year means the mounting debt burden is bound to remain a topic for discussion.
Photo: Shutterstock
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