Dollar Strength in a Global Debt Crisis
Brent Johnson, Founder and CEO of Santiago Capital, has predicted that the dollar and gold will both gain strength relative to other currencies during a global debt crisis. Johnson, known for his Dollar Milkshake Theory, believes that the dollar remains the go-to option in international trade and debt agreements, making it the cleanest dirty shirt in the midst of a crisis. He expects investors to seek out dollars as a safe haven during an economic downturn.
Signals of a Global Sovereign Debt Crisis
Johnson points out that a global sovereign debt crisis is highly likely due to factors such as the growth of debt in the world, low global economic growth, high interest rates, significant debt burdens, and high inflation. He suggests that a credit contraction could lead to a situation similar to the 2008 financial crisis.
De-dollarization and Gold’s Rise
The dollar’s share in global reserves has fallen from 73% in 2001 to 58% today. This trend towards de-dollarization is being supported by the BRICS alliance (Brazil, Russia, India, China, and South Africa), which is seeking to create a reserve asset to rival the dollar. In the midst of a global crisis, Johnson predicts that the dollar will rise against other currencies, and consequently, so will gold. He forecasts gold values reaching between $5,000 to $8,000 as a new monetary system is proposed amidst the chaos.