The foreign exchange market faces "revolutionary progress", the US dollar may face collapse!

The US dollar may be facing a potential collapse, driven by "transformative developments" in the foreign exchange market.

Tavi Costa, partner and macro strategist at Crescat Capital, emphasized in an interview that the proportion of net interest payments to GDP is expected to reach the highest level in over two hundred years. This shift suggests that the US dollar may depreciate relative to other currencies.

Costa explained, "The potential benefits of lowering interest rates to alleviate the soaring debt burden have begun to outweigh the role of combating inflation. The urgent need for financial repression in the US has never been more evident than it is now."

In 2023, the US net interest cost is $658 billion, accounting for 2.4% of GDP. It is expected that the interest cost in 2024 will increase by 36% year-on-year to $892 billion. This upward trend is driven by rising interest rates and growing public debt. It is projected that by 2025, interest costs will reach 3.2% of GDP, and by 2034, it may rise to 4.1% of GDP. This trend indicates significant financial pressure on the federal budget, necessitating measures to manage these costs.

Costa emphasized the necessity of multiple rate cuts by the Federal Reserve: " I believe the Fed will have multiple rate cuts. The reason is that three rate cuts can reduce debt payments by nearly one-third. This won't solve the problem, but it will certainly put us in a better position."

He pointed out that historical precedents suggest that the US may need to lower bond yields to reduce debt costs, similar to how the UK manages its debt. Costa added, " This scenario is very likely to occur in the next two to three years."

Currently, since July 2023, the Federal Reserve has maintained the target range for the federal funds rate at 5.25% to 5.50%, one of the highest levels in over twenty years. The Fed is closely monitoring inflation risks and is expected to consider rate cuts once they are confident that inflation is sustainably moving towards the 2% target.

Costa mentioned that the depreciation of the US dollar could have a significant impact on commodities, especially gold and silver. Central banks around the world have been accumulating gold, and this trend is expected to continue. He said, "The next wave of price increases in commodities such as gold, silver, and copper will be built on the basis of the depreciation of the US dollar."

He added, "Historically, when the US dollar depreciates against other fiat currencies, it triggers rallies in other assets. Natural resource companies tend to perform well, and emerging markets also tend to perform well. If we see significant price increases in gold, silver, and other metals, as well as copper and other commodities again, I wouldn't be surprised."