Tag Archives: Dollar

Don’t Mess With the U.S. (Financially), by Jim Rickards

Having the world’s reserve currency means you can create all sorts of mischief and never say you’re sorry. From Jim Rickards at dailyreckoning.com:

I’ve been documenting financial warfare in my articles for years, but it still doesn’t get the mainstream attention it deserves.

Because as you’ll see below, it can directly impact your wealth.

Financial warfare tools include account seizures and freezes, expulsion from global payment systems, secondary fines and penalties on banks that do business with targeted entities, embargoes, tariffs and many other impositions.

These tools are amplified by the unique role of the U.S. dollar, which is the currency behind 60% of global reserves, 80% of global payments and almost 100% of transactions in oil.

The U.S. controls the banks and payments systems that process dollar transactions. This leaves the U.S. well positioned to impose dollar-related sanctions.

Much has been made of the recent killing of Iranian terrorist mastermind Qasem Soleimani. Many say it was an act of war. But guess what, folks?

We’ve been in a full-scale war with Iran for two years now. It’s just that most people don’t realize it.

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Gundlach: “Intense” Downturn Means “Helicopter Money” Is Coming, by Martin Luscher

Jeffrey Gundlach is one of the world’s most astute bond fund managers and economic prognosticators. From Martin Luscher at Finanz und Wirtscaft via zerohedge.com:

Central banks are easing, and stocks have reached a record high. But that doesn’t mean that everything is okay. Jeffrey Gundlach sees big trouble ahead. The CEO of the investment firm DoubleLine is worried about the development of corporate debt. But also the levels of government debt and the US equity markets are not sustainable. According to Gundlach, investors have to brace for significant disruptions.

Mr. Gundlach, what would you recommend to investors?

They need to position themselves for the next global downturn because it will lead to substantial changes in the markets.

When will the downturn come?

It doesn’t matter whether it comes in one year or four. If you don’t start preparing now, you will maybe do better while the economy continues to do okay, but whatever gain you get from that will be overwhelmed by problems with your investments in the downturn.

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Iran Is China’s Secret Weapon for Killing off the US Dollar’s Global Reserve Status, by Federico Pieraccini

The bulwark of the US dollar as the world’s reserve currency is the oil trade, which heretofore has been conducted almost exclusively in dollars. China seeks to change all that. From Federico Pieraccini at strategic-culture.org:

There is a strong current of change affecting the international political arena. It is the beginning of a revolution brought on by the transition from a unipolar to multipolar world order. In practice, we are faced with the combination of several factors, including the application of US tariffs on Chinese exports, Washington’s sanctions on Iran, US energy self-sufficiency, the vulnerability of Saudi industrial facilities, and Iranian capabilities for resisting US attacks, as well as its exportation of large quantities of gas and oil to China. Everything converges on one factor, namely, the looming decline of the US dollar as the global reserve currency

We have recently been witnessing events of considerable importance in the Middle East, almost on a daily basis. The tensions between Washington and Tehran are fueled above all by the Trump administration’s need to placate most of the US deep state, wedded to neoconservativism, who march in lockstep with Trump’s financiers from Wahhabi Saudi Arabia and Israel.

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De-Dollarization: Europe Joins the Party, by Ronald-Peter Stöferle

De-dollarization will be a slow, incremental process, unless some sort of crisis hastens it along. From Ronald-Peter Stöferle at mises.org:

The ongoing “World War of Currencies”, as the German journalist Daniel D. Eckert called it, the battle for the future of the world monetary system is not a shallow action film but more like Game of Thrones – a complex series with hundreds of actors and locations, stretching over decades and demanding full concentration from the viewer.

The bottom line is that what has been true for decades still applies. The US dollar continues to enjoy the confidence of markets, governments, and central banks. But faith in the US dollar weakens a little every year. Europe, China, Russia and many small countries set new initiatives every year to make themselves independent. And gold, too, plays a major role in this slow departure from the US dollar. But for the world financial system, none of their currencies offer a viable, fully-fledged alternative to the US dollar yet, which is why any news of the death of the US dollar is definitely exaggerated.

Europe’s Small Uprising

Since the Greek crisis of 2012, the American media have often given the impression that the EU and the euro have already broken up or are about to break up. This is not the case. Twenty years after its creation in 1999, the euro area is larger than ever. Of course, nothing is perfect in the EU. The debt problems of the southern states have hardly improved. The structure of the euro zone itself is also often criticized and described as being in need of renovation.

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Trump’s Fed Bashing is a Self-Inflicted Wound, by Tom Luongo

President Trump blames the Fed for things like a too-strong currency when it’s his policies that are responsible. From Tom Luongo at tomluongo.me:

Donald Trump is an economic ignoramus. I say this all the time.

I keep hoping I’m wrong, but every time he opens his mouth he confirms my worst impression of him.

Trump isn’t dumb, he’s very smart. But, like so many smart people, including myself and FOMC members, he’s over-confident in applying that which he’s been mis-educated about.

Trump is surrounded by monetarists, like Larry Kudlow. Kudlow still believes the Phillips Curve has validity for pity’s sake. Behind the curve doesn’t begin to describe the situation in the White House.

And yet that’s what they think of the Fed.

The Fed is staffed by Keynesians, or more accurately Samuelsonians. All of them have truly bonkers ideas about how markets actually work in the real world versus how they do in their textbooks.

Trump is likely the only one of them with any real world experience. And even he, as a real estate developer, only understands things from his tiny perspective.

In his latest round of anti-Fed tweets Trump lit off a litany of economic bromides as to why the Fed is the problem. And, so help me, Donald Trump is so out of touch with reality that I have been reduced to defending the Fed against him.

Trump is right that the dollar is strengthening. But he’s dead wrong about why.

On the one hand he wants a weaker currency but then he lauds, in the same Tweet thread, to the high heavens that money is “pouring into the U.S by the tens of billions” because of safety, security and interest rates.

And worse, that that money pouring is money China isn’t getting. And then, after destroying mutually beneficial trade with China he’s going to spend more of our grandkids’ money (because that’s what record budget deficits are) bailing out farmers whose businesses he ruined.

The stupid, it burns.

He invites capital investment into the U.S through a massive corporate and middle class tax cut and then doesn’t expect the dollar to strengthen? The Fed isn’t the cause of this dynamic.

Sure, the Fed could have held off on raising interest rates but that would only have changed the slope of the capital inflow curve, not the direction.

Germany is collapsing, Hurricane Don. The money has to go somewhere, you know, like water.

Trump seems to think the Fed is all-powerful, that all it has to do is snap its fingers, lower interest rates and all will be well again. No. The Fed is a slave to market forces just like everyone else.

And market forces, set in motion by Trump himself, through his responding reflexively with tariff increases and demonization of China.

Trump seems to think the Fed saved the world alone in 2008. He forgets that global ZIRP was only possible because the Chinese economy had the capacity to take the money printed and put it to work.

Without that capacity, as David Stockman pointed out cogently in his book Peak Trump and my interview with him, there would have not been the last decade of muddle through here in the West and explosive growth of China.

So, Trump blaming the Fed for a rising dollar is silly. What’s causing the rising dollar is the very instability he’s creating with his ‘tariff the world/sanction the world’ policy to force change.

The Fed needed to raise rates and force some sanity on the world. It needed to start rewarding savers to rebuild the pool of real savings within the U.S. economy, gutted to rebuild the banks on Wall St. who are now staring at an abyss of red ink from the oil boom and bust Trump thinks will Make America Great Again.

Russia and Iran have something to say about that.

IMO, they didn’t go far enough. If Trump’s goal is a different trade dynamic, a stronger dollar is the path to doing that. The Fed was helping him get what he wants. But because he’s, frankly, a spoiled Baby Boomer he wants it all and he wants it now.

What’s even sadder about this is that not only is Trump getting me to defend the Fed he’s getting me to agree with the shitlibs who say he doesn’t have the temperament to be President. *reaches for The Road to Serfdom*

He clearly doesn’t.

That doesn’t mean I pine for Hillary Clinton in the Oval Office. This is not an “If Not A, then B” situation. Just because Trump is not fit to be President doesn’t mean Hillary was either.

Like everyone else, I’m just trying to make the best of a bad situation rapidly deteriorating. Trump’s inability to grasp the basics of capital flows and the inadequacies of government accounting is yet another catalyst for a global meltdown that the U.S. will be the last one to feel the worst effects of, because the Fed’s ZIRP policy blew the biggest bubble of all time, denominated in, you guessed it, dollars.

There’s more than $50 trillion in dollar-denominated debt out there trading at already historically-low interest rates. What in the actual fuck does Trump think another 25 basis points is going to do?

Cure Cancer? Or get him re-elected so he can terrorize the world with his victimhood mentality he still clings to from when he was a Democrat.

The Fed can’t reverse the capital flowing into the U.S.. Trump started that the right way, he cut taxes and continues to cut regulations while changing the face of the judiciary.

But like the malignant narcissist that he is he refuses to take responsibility for doing so. His inflexibility will doom his presidency but he won’t see that until it’s too late.

So the blame game goes on. When he’s blaming the media and the increasingly bizarre behavior of Democrats trying to oust him from power, he’s spot on. When he tries to make sense of the interface between politics and markets he’s lost in a wilderness of mirrors.

I have only one word of advice at this point.

Duck.

 

The US Government Debt Crisis, by Alasdair Macleod

There’s no way out if the debt hole the US government has dug itself. From Alasdair Macleod at goldmoney.com:

This article explains why the US Government is ensnared in a debt trap from which there is no escape. Its finances are spiralling out of control. In the context of a rapidly slowing global economy, the budget deficit can only be financed by QE and bank credit expansion. Do not draw comfort from trade protectionism: it will not prevent the trade deficit increasing at the expense of domestic production, unless you believe there will be an unlikely resurgence in personal saving rates. We can now begin to see how the debt crisis will evolve, leading to the destruction of the dollar.

Introduction

At the time of writing (Thursday April 24) bond yields are crashing, the euro has broken down against the dollar and equities are hitting new highs. Obviously, equities are taking their queue from bonds. But bond yields are crashing because the global economy is sending some very worrying signals. Equity investors will be hoping monetary easing (which they now fully expect) will kick the can down the road once again and economies will continue to bubble along. They are ignoring some very basic economic facts…

Regular readers of my Insight articles will be aware of strong indications that the expansionary phase of the credit cycle is now over, and that we at grave risk of falling headlong into a global credit and systemic crisis. The underlying condition is that economic actors and their bankers accustomed to credit expansion are beginning to realise the assumptions behind their borrowing commitments earlier in the credit cycle were incorrect.

That’s why it is a credit cycle. It is driven by prior credit expansion which corrals all producers into acting in an expansionary manner at the same time. Random activity, the condition of a true laissez-faire economy, ceases. Instead, credit conditions act on profit-seeking businesses in a state-managed context. Entrepreneurs take the availability of subsidised credit to be a profit-making opportunity. The same cannot be said of governments because they do not seek profits, only revenue.

If a government acts responsibly it should never have to borrow, except perhaps in an emergency, such as to defend the country against invasion. The evolution into unbacked fiat currencies has changed all that by permitting governments to finance themselves through the printing press.

There is only one way a government funds the excess of spending over tax revenue without it being inflationary, and that is to borrow money from savers. There is a downside to this. The government bids for existing savings, including those held in pension and insurance funds, diverting them from other borrowers. In the 1980s this was described as “crowding out” other borrowers and had the effect of increasing interest rates to the point where these other borrowers stop borrowing. In the post-war years, this has been the consequence of spendthrift socialism.

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Will Globalists Sacrifice The Dollar To Get Their ‘New World Order’? by Brandon Smith

Globalists will sacrifice whatever needs to be sacrificed, including you and your family’s lives, to get their new world order. From Brandon Smith at alt-market.com:

Trade is a fundamental element of human survival. No one person can produce every single product or service necessary for a comfortable life, no matter how Spartan their attitude. Unless your goal is to desperately scratch an existence from your local terrain with no chance of progress in the future, you are going to need a network of other producers. For most of the history of human civilization, production was the basis for economy. All other elements were secondary.

At some point, as trade grows and thrives, a society is going to start looking for a store of value; something that represents the man-hours and effort and ingenuity a person put into their day. Something that is universally accepted within barter networks, something highly prized, that is tangible, that can be held in our hands and is impossible to replicate artificially. Enter precious metals.

Thus, the concept of “money” was born, and for the most part it functioned quite well for thousands of years. Unfortunately, there are people in our world that see economy as a tool for control rather than a vital process that should be left alone to develop naturally.

The idea of “fiat money”, money which has no tangibility and that can be created on a whim by a central source or authority, is rather new in the grand scheme of things. It is a bastardization of the original and much more stable money system that existed before that was anchored in hard commodities. While it claims to offer a more “liquid” store of value, the truth is that it is no store of value at all.

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