Over the Christmas break, the guys at MacroVoices created a special series about the future of the US dollar. It was supposed to be a bulls versus bears debate, but a problem became quickly apparent when all the participants found themselves agreeing, that over the long run, the US dollar was headed lower. They simply disagreed about the path.

Alhambra Investment Partner’s Jeff Snider believed the structural problems in the eurodollar market would cause a US dollar short squeeze that eventually forces a monetary reset which results in a much lower US dollar. While “Forest for the Trees” Luke Gromen and Morgan Creek Capital’s Mark Yusko held the view that the US dollar is in the process of losing its reserve currency status. While they didn’t agree with the speed at which this occurs, they were mainly on the same page – the long march lower for the US dollar had already started. And MacroVoices host Erik Townsend even jumped into the mix, and in a great addition, shared his views and concerns about the future of the US dollar from a societal point of view. Now, these synopses are probably doing great injustice to all the nuances of their arguments, but I think I got the big picture right.

Now if you made me choose a side, I must admit, I am partial to Luke Gromen’s argument that the US dollar has begun the process of losing its reserve currency status, but where I differ from most thinkers is the belief that this will eventually result in some great market crisis.

Do I think that a decade from now that the US dollar will be as dominant as today? Not a chance. With technology making transactions easier, I don’t see why commodities need to be predominantly priced in one currency. Capital is increasingly becoming more mobile. Financial transactions are converted into various currencies with remarkable ease. Why does there even need to be a reserve currency?

Often US dollar bulls, when pushing back against this idea, will counter and say – if the US dollar loses its reserve currency status, which currency will take its place? I would argue none. Who wants the exorbitant privilege?

But… but… but… I can hear it already – America funds enormous deficits at rates that the market only accepts due to its reserve currency status. To which I respond with a resounding – BS! If that was the case, then both Japan and Europe would be punished with sky-high interest rates. Instead they are funding their monster deficits with near zero interest rates. But… but… but…. they are pegging their rates, so that argument isn’t fair. Yeah, to that I would retort – the unholy trinity means you can’t control interest rates, have free capital movement, and not have it show up in the foreign exchange rate. Yet neither Japan and Europe is experiencing some massive decline in their currency, so I don’t buy that argument. The US dollar reserve currency status is not the reason the US is able its fund massive deficits. All reputable countries are able to fund their way-too-large deficits, so losing the reserve currency status is not going to result in some spike in US interest rates.

Why does no one examine the middle of the road possibility?

Which brings me to my main point. Why do so many strategists believe the problem of too much debt needs to be resolved in either a deflationary credit contraction or alternatively a hyper-inflationary explosion? Why does no one examine a middle of the road possibility?

I agree there is no way we are going to grow our way out of our massive indebtedness. I am not some naive Pollyanna that believes Trump’s policies will usher in a Reagan type financial revolution that somehow magically grows the economy enough to right the debt burden. Not a chance. Nor am I some doom-and-gloomer that believes the growing debt needs to reset through a credit contraction that involves a painful 1929 style depression.