Nassim Taleb, who wrote the book Black Swan about unexpected events, he is concerned about the role of the US dollar in global finance.
It follows Western sanctions that froze Russian assets after Vladimir Putin promised to invade Ukraine in 2022. interview on Bloomberg TV on Friday, he called the move a “confiscation” and called it the 21st century. He called it one of the two biggest financial mistakes of the century.
“It might make sense from a justice point of view, but you have to remember that it won’t encourage people to invest in the system,” Taleb warned.
The dollar remains the dominant payment method and is used 88% of foreign exchange transactions.
But its position as a major reserve currency has eroded. Although the trend has been around for decades, start the green bill is 58% today and 71% in 2000; Sanctions against Russia sparked a rush for alternatives.
Gold, in particular, has been acquired by central banks around the world in an attempt to diversify away from the dollar.
“So I’m really afraid of the progressive loss of the role of the dollar,” said Taleb, “people make transactions nominally in dollars but they don’t keep them in dollars, and that’s the problem.”
This trend of de-dollarization comes as the US government is sinking deeper into debt, raising interest-only costs and worsening the budget deficit.
As federal spending continues to outpace revenue, the Treasury Department must issue larger volumes of bonds, many of which are purchased by foreign investors. But if they are worried about the safety of their dollar-denominated assets, will they continue to fund US debt?
“That’s why I’m scared,” Taleb added. “I am afraid of what the current administration has done in 2022 when the assets were confiscated. It doesn’t encourage people to invest in your currency.’
He later said, “This hurts the United States tremendously.”
Taleb, a prominent scientific advisor at Mark Spitznagel’s Universa Investments, also warned that the markets are weaker than they have been in the last 20-30 years.
He cited some of the tech giants that have fueled the S&P 500’s rally on AI hopes. While AI in general can be a great investment opportunity, the companies that have been on the rise may not represent the sector’s long-term growth, he explained.
The current environment is similar to what existed during previous collapses, Taleb said, a period before low interest rates that felt like a sign of market complacency and taught people to avoid conservative investments.
Now, valuations are “crazy” and based on high expectations, while the economy looks “very mixed” as the data has been sending mixed signals lately.
Likewise, his colleague warned Spitznagel recently no inversion of the yield curve after years of reversals, it is an early sign of major pullbacks as a recession approaches.
“That’s when you get into the nigger’s territory,” he said Bloomberg Television last month “Black jackals always hide, but now we’re in their territory.”
