- Unsecured US debt could threaten the dollar’s long-term dominance, says Jim Grant.
- He told CNBC that promises to cut costs “may be rescinded and forgotten.”
- Fears that the government will default on its debt payments have weighed on demand for dollar-denominated Treasury bonds.
The dollar’s dominance as the reserve currency could be at risk in the future if the US does not rein in its borrowing capacity, market expert Jim Grant said.
“Our currency is the biggest export you can imagine — it costs nothing to produce, it’s accepted around the world,” he told CNBC’s “Squawk Box” Thursday. But the acceptance of that currency and the debt in those dollars, we should not take it for granted.”
Investors have been fretting over government borrowing in recent weeks, along with politicians struggling to resolve Washington’s debt ceiling crisis.
The Biden administration’s Republican-led House of Representatives is widely expected to agree to raise the $31.4 trillion debt ceiling for future spending cuts.
The author of “Grant’s Interest Rate Observer” said he expects the impasse to end soon — but warned that the deficit may not fall despite the Biden administration’s pledge to cut future spending.
“I think it’s going to be resolved, but it’s not,” Grant told CNBC.
In the year There will be a solution, just like in 2011, but in 2011 we pledged $2.2 trillion in savings over 10 years and the result is a cumulative deficit of $11.5 trillion.
“In practice, this inevitable resolution will result in a lot of off-year promises that will be overturned and forgotten based on history.”
High long-term U.S. debt levels pose a threat to the dollar as investors fear the government will default on its debt.
This reduces demand for dollar-denominated Treasury bonds, which pay their yield only if the government defaults on its debt obligations.
Read more: Wall Street is bracing for stock market chaos as the debt ceiling climbs ahead.
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