Dialogue Between Professors Sanchez, Rowe, and Carter on the Dynamics Leading to the Collapse of US Asset Prices for Teaching Purposes

 

Scene: Continuation of the seminar recording for class instruction (Simulation)

Prof. Rowe:

Colleagues, I’d like to bring our students’ attention to a recent observation circulating in financial media. Let me read it aloud [1]:

“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 [sic] territory in the global financial system.”

Let’s discuss what this means in simple terms and how it relates to market behavior, especially in the context of Miran’s strategies.

Prof. Carter:
I’ll start. When we see a simultaneous collapse like this—stocks falling, the dollar weakening, and bond prices dropping—it signals that investors are losing confidence in the U.S. economy as a whole, not just in one area. Normally, if stocks fall, bonds rise as a safe haven. But here, everything’s falling together.

Prof. Sanchez:
Exactly. That’s an unusual and alarming sign. It suggests investors are pulling out across the board—possibly because they fear the U.S. is no longer the safest place to keep their money. It could be due to uncertainty around aggressive trade policies, debt sustainability, or geopolitical risk.

Prof. Rowe:
Right. And what might be driving the drop in the dollar?

Prof. Carter:
If the dollar weakens against other reserve currencies, it means investors are shifting money to alternative safe havens, like the euro, Swiss franc, or even gold. That’s a red flag. It shows reduced trust in the dollar’s stability or its ability to hold value. This is particularly ironic if it’s happening in response to a policy designed to reduce the dollar’s overvaluation, as Miran proposes.

Prof. Sanchez:
The bond market decline adds another layer. Typically, people buy U.S. Treasurys during uncertainty, which raises prices and lowers yields. But if prices are falling and yields are rising, it could mean investors are worried about higher inflation, growing fiscal deficits, or even U.S. creditworthiness. That makes U.S. debt less attractive—and signals a deeper lack of confidence.

Prof. Rowe:
That leads us to the notion of systemic flight—capital moving not just out of stocks but out of the U.S. entirely. Miran warns against this reaction if the strategy is not implemented in a stable and coordinated way.

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Market Dynamics Summary (Prof. Carter):

• Equities falling → fear of slowing growth or corporate profits.

• Dollar falling → reduced global confidence in U.S. leadership or policy credibility.

• Bond prices falling (yields rising) → fear of inflation, debt risk, or Fed inaction.

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Outcome Projections (Prof. Sanchez):

Short-Term:

• Higher volatility, tighter credit, and increased borrowing costs.

• Companies may cut hiring or investment due to uncertainty.

Medium-Term:

• Foreign central banks may reduce their holdings of U.S. assets.

• Global investors could shift toward non-dollar systems—gold, digital currencies, or regional agreements.

Long-Term:

• If not corrected, we risk a realignment of global finance, in which the dollar loses influence and U.S. assets are no longer the world’s first choice.

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Prof. Rowe:
For students, this quote captures what happens when markets lose faith not only in policy specifics but also in the overall framework supporting U.S. economic credibility. This is the danger of poorly sequenced reforms—something Miran admits could happen if his strategy isn’t well coordinated.

Prof. Sanchez:
Exactly. Miran’s strategy can only work if it balances trade reform, currency policy, and market stability—otherwise, the kind of collapse this quote describes could become a real outcome.

Prof. Carter:
So, students, remember this: markets are fast, and sentiment can change overnight. If you propose bold strategies, you must also understand how markets will likely respond—and what indicators to watch to stay ahead.

Prof. Rowe:
Let’s wrap up here, and for your next discussion section, bring thoughts on how governments can prepare for or respond to this kind of “uncharted territory” in finance. Thank you both.

1. "Deutsche's dollar downer," Financial Times, published on March 4, 2025