Deutsche Bank claims global financial system is venturing into 'unchartered territory'
The ongoing standoff between the US and China poses a significant risk of escalating into an "outright financial war" with no clear victors, warns George Saravelos, Deutsche Bank’s global head of foreign exchange research. Saravelos delivered...
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The ongoing standoff between the US and China poses a significant risk of escalating into an "outright financial war" with no clear victors, warns George Saravelos, Deutsche Bank’s global head of foreign exchange research.
Saravelos delivered this caution in a client memo on Wednesday, which has been referenced by several media sources. He has consistently flagged the potential for a forthcoming dollar crisis and a global erosion of trust in the US currency, characterizing the current environment as a “collapse” in markets.
“We are witnessing a simultaneous collapse in the price of all US assets, including equities, the dollar versus alternative reserve FX and the bond market. We are entering unchartered territory in the global financial system,” he noted.
The process of de-dollarization is occurring at a faster pace than anticipated, and Saravelos highlighted the uncertainty surrounding "how orderly this process can remain." He pointed out that the situation diverges from a "typical crisis environment," where markets typically stockpile dollar liquidity to secure funding for US assets.
“Dynamics here seem to be very different: the market has lost faith in US assets, so that instead of closing the asset-liability mismatch by hoarding dollar liquidity it is actively selling down the US assets themselves,” Saravelos stated, further mentioning that the actions of President Donald Trump’s administration have been "encouraging the sell-off in US Treasuries."
The consequences of the US-China trade war could have profound implications for the global economy, potentially spiraling into an “outright financial war.” Saravelos noted that the substantial tariffs enacted by Trump have left little room for further escalation in trade disputes, while Beijing seems to be "maintaining the optionality of weaponizing the currency while signaling a far more supportive domestic economic stance."
“The next phase risks being an outright financial war involving Chinese ownership of US assets, both on the official and private sector front. It is important to note there can be no winner to such a war: it will damage both the owner and the producer of those assets. The loser will be the global economy,” he cautioned.
The focus of Trump’s efforts to rectify America’s trade balance has been predominantly on China, accompanied by retaliatory tariffs on various nations worldwide. Earlier this year, Trump implemented a 20% tariff on Chinese imports, subsequently imposing an additional 34%. In response, Beijing introduced a 34% tariff on US goods, prompting Trump to increase tariffs by another 50%, totaling 104%.
In the latest developments, China added a further 50% tariff on American imports, raising the total to 84%. In retaliation, Trump elevated the tariffs to 125% on Wednesday, even before the latest Chinese measures took effect.
James del Carmen for TROIB News
Saravelos delivered this caution in a client memo on Wednesday, which has been referenced by several media sources. He has consistently flagged the potential for a forthcoming dollar crisis and a global erosion of trust in the US currency, characterizing the current environment as a “collapse” in markets.
“We are witnessing a simultaneous collapse in the price of all US assets, including equities, the dollar versus alternative reserve FX and the bond market. We are entering unchartered territory in the global financial system,” he noted.
The process of de-dollarization is occurring at a faster pace than anticipated, and Saravelos highlighted the uncertainty surrounding "how orderly this process can remain." He pointed out that the situation diverges from a "typical crisis environment," where markets typically stockpile dollar liquidity to secure funding for US assets.
“Dynamics here seem to be very different: the market has lost faith in US assets, so that instead of closing the asset-liability mismatch by hoarding dollar liquidity it is actively selling down the US assets themselves,” Saravelos stated, further mentioning that the actions of President Donald Trump’s administration have been "encouraging the sell-off in US Treasuries."
The consequences of the US-China trade war could have profound implications for the global economy, potentially spiraling into an “outright financial war.” Saravelos noted that the substantial tariffs enacted by Trump have left little room for further escalation in trade disputes, while Beijing seems to be "maintaining the optionality of weaponizing the currency while signaling a far more supportive domestic economic stance."
“The next phase risks being an outright financial war involving Chinese ownership of US assets, both on the official and private sector front. It is important to note there can be no winner to such a war: it will damage both the owner and the producer of those assets. The loser will be the global economy,” he cautioned.
The focus of Trump’s efforts to rectify America’s trade balance has been predominantly on China, accompanied by retaliatory tariffs on various nations worldwide. Earlier this year, Trump implemented a 20% tariff on Chinese imports, subsequently imposing an additional 34%. In response, Beijing introduced a 34% tariff on US goods, prompting Trump to increase tariffs by another 50%, totaling 104%.
In the latest developments, China added a further 50% tariff on American imports, raising the total to 84%. In retaliation, Trump elevated the tariffs to 125% on Wednesday, even before the latest Chinese measures took effect.
James del Carmen for TROIB News
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