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The dollar will gain strength relative to other currencies, along with gold, as a "violent" global debt crisis unfolds. That is according to Brent Johnson, Founder and CEO of Santiago Capital.
Johnson, who created the Dollar Milkshake Theory, said that "there is no alternative to the dollar" when it comes to international trade and debt agreements.
"I think that in that scenario [a global sovereign debt crisis], despite all the protestations to the contrary… the dollar will be seen as the cleanest dirty shirt," he told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "Investors and entities around the world will seek out dollars as a safe haven in that environment."
Johnson said that a global sovereign debt crisis is highly likely given "the growth of debt in the world," and the aftermath of a credit crunch.
He claimed that the combination of low global economic growth, high interest rates, significant debt burdens, and high inflation could trigger the crisis.
"Once a credit contraction takes place, then it can feed on itself, and you can get into a situation like we had in 2008," he suggested.
To find out when Johnson forecasts the global sovereign debt crisis taking place, watch the video above.
De-dollarization
The dollar's share in global reserves has fallen from 73 percent in 2001 to 58 percent today, according to the Royal Bank of Canada.
The trend toward de-dollarization is compounded by the BRICS alliance (Brazil, Russia, India, China, and South Africa), which is meeting in South Africa this August to unveil plans for a reserve asset to rival the dollar.
The Western response to Russia's invasion of Ukraine in 2022, which included banning Russia from the SWIFT international payments system, caused chills around the world. Many feared the "weaponization of the dollar," following these sanctions.
Although he agreed that there is a trend toward de-dollarization, Johnson forecast that it would take "at least" ten years for it to play out completely.
"I am not of the belief that the dollar gets inflated away and the dollar index falls versus foreign fiat currencies, and we go into a hyperinflation and the rest of the currencies stay strong," said Johnson.
He added that although foreign political leaders would seek to de-dollarize and negotiate bilateral trade agreements, there would be "pushback" from business leaders.
"Most of them [businessmen] want to be paid in dollars," he observed. "The dollar's purchasing power is better than the Brazilian real's purchasing power, or the Kenyan shilling's purchasing power, or the Turkish lira's."
Gold
As the dollar rises against other currencies, so will gold, according to Johnson.
"I think the dollar is going to get so strong that it wrecks the current [global monetary] system," Johnson predicted. "As the dollar rises, and the system comes under threat, and we have all this chaos and a new monetary system is proposed, gold will be trading at $5,000 or $8,000… Gold will go much higher as this chaos ensues."
To find out whether Johnson is adding more gold to his portfolio, watch the video above.
Gold will reach $3k in market 'melt up' with S&P 500 up at least 36% by Q4 2023 - David Hunter
By
Cornelius Christian
For Kitco News
